This rule is issued under Marketing Agreement No. 148 and Order No. 932, both as amended (7 CFR part 932), regulating the handling of olives grown in California, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, California olive handlers are subject to assessments. Funds to administer the order are derived from such assessments. It is intended that the assessment rate as issued herein would be applicable to all assessable olives beginning on January 1, 2007, and continue until amended, suspended, or terminated. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This rule increases the assessment rate established for the committee for the 2007 and subsequent fiscal years from $11.03 to $47.84 per ton of assessable olives from the applicable crop years.

The California olive marketing order provides authority for the committee, with the approval of USDA, to formulate an annual budget of expenses and collect assessments from handlers to administer the program. The fiscal year, which is the 12-month period between January 1 and December 31, begins after the corresponding crop year, which is the 12-month period beginning August 1 and ending July 31 of the subsequent year. Fiscal year budget and assessment recommendations are made after the corresponding crop year olive tonnage is reported. The members of the committee are producers and handlers of California olives. They are familiar with the committee's needs and with costs for goods and services in their local area and are thus in a position to formulate an appropriate budget and assessment rate. The assessment rate is discussed in a public meeting. Thus, all directly affected persons have an opportunity to participate and provide input.

For the 2006 and subsequent fiscal years, the committee recommended, and USDA approved, an assessment rate that would continue in effect from fiscal year to fiscal year unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the committee or other information available to USDA.

The committee met on December 12, 2006, and unanimously recommended 2007 fiscal year expenditures of $950,396 and an assessment rate of $47.84 per ton of assessable olives. In comparison, the budgeted expenditures for fiscal year 2006 were $1,301,121. The assessment rate of $47.84 is $36.81 higher than the rate currently in effect. The committee recommended the higher assessment rate because the 2006-07 assessable olive receipts as reported by the California Agricultural Statistics Service (CASS) are only 16,270 tons, which compares to 114,761 tons in 2005-06. Unusual weather conditions, including a wet winter and very hot summer, contributed to a substantially smaller crop. The committee also plans to use available reserve funds to help meet its 2007 expenses.

The major expenditures recommended by the committee for the 2007 fiscal year include $365,775 for research, $332,450 for marketing activities, and $252,171 for administration. Budgeted expenditures for these items in 2006 were $210,000, $800,700, and $290,421, respectively. The committee recommended a larger 2007 research budget so it can continue its ongoing olive fly research and research to develop a mechanical olive harvesting method. The 2007 marketing program would be scaled back. Recommended decreases in the administrative budget are due mainly to tighter budgeting in several areas.

The assessment rate recommended by the committee was derived by considering anticipated fiscal year expenses, actual olive tonnage received by handlers during the 2006-07 crop year, and additional pertinent factors. Actual assessable tonnage for the 2007 fiscal year is expected to be lower than the 2006-07 crop receipts of 16,270 tons reported by the CASS because some olives may be diverted by handlers to uses that are exempt from marketing order requirements. Income derived from handler assessments, along with funds from the committee's authorized reserve and interest income, would be adequate to cover budgeted expenses. Funds in the reserve would be kept within the maximum permitted by the order of approximately one fiscal year's expenses (§ 932.40).

The assessment rate established in this rule will continue in effect indefinitely unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the committee or other available information.

Although this assessment rate will be in effect for an indefinite period, the committee will continue to meet prior to or during each fiscal year to recommend a budget of expenses and consider recommendations for modification of the assessment rate. The dates and times of committee meetings are available from the committee or USDA. Committee meetings are open to the public and interested persons may express their views at these meetings. USDA will evaluate committee recommendations and other available information to determine whether modification of the assessment rate is needed. Further rulemaking will be undertaken as necessary. The committee's 2007 budget and those for subsequent fiscal years will be reviewed and, as appropriate, approved by USDA.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 850 producers of olives in the production area and 2 handlers subject to regulation under the marketing order. Small agricultural producers are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts less than $750,000, and small agricultural service firms are defined as those whose annual receipts are less than $6,500,000.

Based upon information from the committee, the majority of olive producers may be classified as small entities. Both of the handlers may be classified as large entities.

This rule increases the assessment rate established for the committee and collected from handlers for the 2007 and subsequent fiscal years from $11.03 to $47.84 per ton of assessable olives. The committee unanimously recommended 2007 expenditures of $950,396 and an assessment rate of $47.84 per ton. The proposed assessment rate of $47.84 is $36.81 higher than the 2006 rate. The higher assessment rate is necessary because assessable olive receipts for the 2006-07 crop year were reported by the CASS to be 16,270 tons, compared to 114,761 tons for the 2005-06 crop year. Actual assessable tonnage for the 2007 fiscal year is expected to be lower because some of the receipts may be diverted by handlers to exempt outlets on which assessments are not paid.

Income generated from the $47.84 per ton assessment rate should be adequate to meet this year's expenses when combined with funds from the authorized reserve and interest income. Funds in the reserve would be kept within the maximum permitted by the order of about one fiscal year's expenses (§ 932.40).

Expenditures recommended by the committee for the 2007 fiscal year include $365,775 for research, $332,450 for marketing activities, and $252,171 for administration. Budgeted expenses for these items in 2006 were $210,000, $800,700, and $290,421 respectively. The committee recommended a larger 2007 research budget so it can continue its olive fly research projects and research to develop a mechanical olive harvesting method. The 2007 marketing program would be scaled back. Recommended decreases in the administrative budget are due mainly to tighter budgeting in several areas.

Prior to arriving at this budget, the committee considered information from various sources, such as the committee's Executive, Market Development, and Research Subcommittees. Alternate spending levels were discussed by these groups, based upon the relative value of various research and marketing projects to the olive industry and the reduced olive production. The assessment rate of $47.84 per ton of assessable olives was derived by considering anticipated expenses, the volume of assessable olives and additional pertinent factors.

A review of historical information indicates that the grower price for the 2006-07 crop year was approximately $960.57 per ton for canning fruit and $344.56 per ton for limited-use sizes, leaving the balance as unusable cull fruit. Approximately 87 percent of a ton of olives are canning fruit sizes and 9 percent are limited use sizes, leaving the balance as unusable cull fruit. Grower revenue on 16,270 total tons of canning and limited-use sizes would be $14,704,092 given the current grower prices for those sizes. Therefore, with an assessment rate increased from $11.03 to $47.84, the estimated assessment revenue is expected to be approximately 5 percent of grower revenue.

This action increases the assessment obligation imposed on handlers. While assessments impose some additional costs on handlers, the costs are minimal and uniform on all handlers. Some of the additional costs may be passed on to producers. However, these costs will be offset by the benefits derived by the operation of the marketing order. In addition, the committee's meeting was widely publicized throughout the California olive industry and all interested persons were invited to attend the meeting and participate in committee deliberations on all issues. Like all committee meetings, the December 12, 2006, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.

This rule imposes no additional reporting or recordkeeping requirements on either small or large California olive handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

The AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

A proposed rule concerning this action was published in the Federal Register on March 7, 2007 (72 FR 10091). Copies of the proposed rule were also mailed or sent via facsimile to all olive handlers. Finally, the proposal was made available through the Internet by USDA and the Office of the Federal Register. A 15-day comment period ending March 22, 2007, was provided for interested persons to respond to the proposal. No comments were received.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab/html . Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

After consideration of all relevant material presented, including the information and recommendation submitted by the committee and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) The 2007 fiscal year began on January 1, 2007, and the marketing order requires that the rate of assessment for each fiscal year apply to all assessable olives handled during such fiscal year; (2) the committee needs sufficient funds to pay its expenses, which are incurred on a continuous basis; and (3) handlers are aware of this action, which was discussed by the committee and unanimously recommended at a public meeting, and is similar to other assessment rate actions issued in past years. Also, a 15-day comment period was provided for in the proposed rule.

This rule is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the provisions of the marketing order now in effect, salable quantities and allotment percentages may be established for classes of spearmint oil produced in the Far West. This rule increases the quantity of Scotch and Native spearmint oil produced in the Far West that may be purchased from or handled for producers by handlers during the 2006-2007 marketing year, which ends on May 31, 2007. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

The original salable quantity and allotment percentages for Scotch and Native spearmint oil for the 2006-2007 marketing year were recommended by the Committee at its October 5, 2005, meeting. The Committee recommended salable quantities of 878,205 pounds and 1,007,886 pounds, and allotment percentages of 45 percent and 46 percent, respectively, for Scotch and Native spearmint oil. A proposed rule was published in the Federal Register on February 1, 2006 (71 FR 5183). Comments on the proposed rule were solicited from interested persons until March 3, 2006. No comments were received. Subsequently, a final rule establishing the salable quantities and allotment percentages for Scotch and Native spearmint oil for the 2006-2007 marketing year was published in the Federal Register on April 5, 2006 (71 FR 16986).

Pursuant to authority contained in §§ 985.50, 985.51, and 985.52 of the order, the Committee has made recommendations to increase the quantity of Scotch and Native spearmint oil that handlers may purchase from, or handle for, producers during the 2006-2007 marketing year, which ends on May 31, 2007. An interim final rule was published in the Federal Register on May 26, 2006 (71 FR 30266), which increased the 2006-2007 salable quantity and allotment percentage for Native spearmint oil to 1,161,260 pounds and 53 percent, respectively. Comments on the interim final rule were solicited from interested persons until July 25, 2006. No comments were received. Subsequently, a final rule establishing the salable quantity and allotment percentage for Native spearmint oil was published in the Federal Register on September 7, 2006 (71 FR 52735).

This rule would further revise the quantity of Scotch and Native spearmint oil that handlers may purchase from, or handle for, producers during the 2006-2007 marketing year, which ends on May 31, 2007. The Committee, with all eight members present, met on February 21, 2007, and in two separate motions, recommended that the 2006-2007 Scotch and Native spearmint oil allotment percentages be increased by 108 percent and 2 percent, respectively. The motion to increase the allotment percentage for Scotch was unanimous and the motion to increase the allotment percentage for Native passed with seven members in favor and one member opposed. The member opposing was concerned that there was not enough demand.

Thus, taking into consideration the following discussion on adjustments to the Scotch and Native spearmint oil salable quantities, this rule increases the 2006-2007 marketing year salable quantities and allotment percentages for Scotch and Native spearmint oil to 2,984,817 pounds and 153 percent, and 1,205,208 pounds and 55 percent, respectively.

The salable quantity is the total quantity of each class of oil that handlers may purchase from, or handle for, producers during the marketing year. The total salable quantity is divided by the total industry allotment base to determine an allotment percentage. Each producer is allotted a share of the salable quantity by applying the allotment percentage to the producer's individual allotment base for the applicable class of spearmint oil.

The total industry allotment base for Scotch spearmint oil for the 2006-2007 marketing year was estimated by the Committee at the October 5, 2005, meeting at 1,951,567 pounds. This was later revised at the beginning of the 2006-2007 marketing year to 1,950,861 pounds to reflect a 2005-2006 marketing year loss of 706 pounds of base due to non-production of some producers' total annual allotments. When the revised total allotment base of 1,950,861 pounds is applied to the originally established allotment percentage of 45 percent, the initially established 2006-2007 marketing year salable quantity of 878,205 pounds is effectively modified to 877,887 pounds.

The same situation applies to Native spearmint oil where the Committee estimated that the total industry allotment base for the 2006-2007 marketing year was established at 2,191,056 pounds and was revised at the beginning of the 2006-2007 marketing year to 2,191,287 pounds to reflect a 2005-2006 marketing year gain of 231 pounds of base for new and existing producers. When the revised total allotment base of 2,191,287 pounds is applied to the originally established allotment percentage of 46 percent, the initially established 2006-2007 marketing year salable quantity of 1,007,886 pounds is effectively modified to 1,007,992 pounds.

By increasing the salable quantities and allotment percentages, this rule makes an additional amount of Scotch and Native spearmint oil available by releasing oil from the reserve pool. When applied to each individual producer, the allotment percentage increase allows each producer to take up to an amount equal to their allotment base from their reserve for this respective class of oil. In addition, pursuant to §§ 985.56 and 985.156, producers with excess oil are not able to transfer such excess oil to other producers to fill deficiencies in annual allotments after October 31 of each marketing year.

The following table summarizes the Committee recommendations:

(A) Estimated 2006-2007 Allotment Base—1,951,567 pounds. This is the estimate on which the original 2006-2007 Scotch spearmint oil salable quantity and allotment percentage was based.

(B) Revised 2006-2007 Allotment Base—1,950,861 pounds. This is 706 pounds less than the estimated allotment base of 1,951,567 pounds. This is less because some producers failed to produce all of their 2005-2006 allotment.

(C) Original 2006-2007 Allotment Percentage—45 percent. This was unanimously recommended by the Committee on October 5, 2005.

(D) Original 2006-2007 Salable Quantity—878,205 pounds. This figure is 45 percent of the estimated 2006-2007 allotment base of 1,951,567 pounds.

(E) Adjustment to the Original 2006-2007 Salable Quantity—877,887 pounds. This figure reflects the salable quantity initially available after the beginning of the 2005-2006 marketing year due to the 706 pound reduction in the industry allotment base to 1,950,861 pounds.

(F) First Revision to the 2006-2007 Salable Quantity and Allotment Percentage:

(1) Increase in Allotment Percentage—108 percent. The Committee recommended a 108 percent increase at its February 21, 2007, meeting.

(2) 2006-2007 Allotment Percentage—153 percent. This figure is derived by adding the increase of 108 percent to the original 2006-2007 allotment percentage of 45 percent.

(3) Calculated Revised 2006-2007 Salable Quantity—2,984,817 pounds. This figure is 153 percent of the adjusted 2006-2007 allotment base of 1,950,861 pounds.

(4) Computed Increase in the 2006-2007 Salable Quantity—2,106,930 pounds. This figure is 108 percent of the adjusted 2006-2007 allotment base of 1,950,861 pounds.

(G) No Second Revision to the 2006-2007 Salable Quantity and Allotment Percentage.

The 2006-2007 marketing year began on June 1, 2006, with an estimated carry-in of 43,057 pounds of salable oil. Of the original 2006-2007 salable quantity of 877,887 pounds, only 708,768 pounds was actually produced. This results in an available supply of 751,825 pounds for the 2006-2007 marketing year. Of this amount, 736,904 pounds of Scotch spearmint oil has already been sold or committed for the 2006-2007 marketing year, which leaves 14,921 pounds available for sale. As of February 15, 2007, the reserve pool is estimated at 13,529 pounds.

In making this recommendation, the Committee considered all available information on price, supply, and demand. The Committee also considered reports and other information from handlers and producers in attendance at the meeting and reports given by the Committee Manager from handlers who were not in attendance. Handlers expressed concern about the limited supply of Scotch spearmint oil remaining and that significant quantities of this oil is of less than desirable quality. An additional concern is that the remaining spearmint oil is in the possession of only a few producers with minimal allotment base. An example of this would be a producer who has 4,000 pounds of reserve pool oil and only 3,700 pounds of allotment base. The only way a handler could purchase this producer's oil is if the allotment percentage is increased to at least 108 percent. Without this increase, the industry may not be able to meet market demand based on past history and current conditions. Additionally, when the Committee made its original recommendation for the establishment of the Scotch spearmint oil salable quantity and allotment percentage for the 2006-2007 marketing year, it had anticipated that the year would end with an ample available supply.

(A) Estimated 2006-2007 Allotment Base—2,191,056 pounds. This is the estimate on which the original 2006-2007 Native spearmint oil salable quantity and allotment percentage was based.

(B) Revised 2006-2007 Allotment Base—2,191,287 pounds. This is 231 pounds more than the estimated allotment base of 2,191,056 pounds. This is more because some producers over-produced their 2005-2006 allotment.

(C) Original 2006-2007 Allotment Percentage—46 percent. This was unanimously recommended by the Committee on October 5, 2005.

(D) Original 2006-2007 Salable Quantity—1,007,886 pounds. This figure is 46 percent of the estimated 2006-2007 allotment base of 2,191,056 pounds.

(E) Adjustment to the Original 2006-2007 Salable Quantity—1,007,992 pounds. This figure reflects the salable quantity initially available after the beginning of the 2006-2007 marketing year due to the 231 pound gain in the industry allotment base to 2,191,287 pounds.

(F) First Revision to the 2006-2007 Salable Quantity and Allotment Percentage:

(1) Increase in Allotment Percentage—7 percent. The Committee recommended a 7 percent increase at its April 18, 2006, meeting.

(2) 2006-2007 Allotment Percentage—53 percent. This figure is derived by adding the increase of 7 percent to the original 2006-2007 allotment percentage of 46 percent.

(3) Calculated Revised 2006-2007 Salable Quantity—1,161,382 pounds. This figure is 53 percent of the adjusted 2006-2007 allotment base of 2,191,287 pounds.

(4) Computed Increase in the 2006-2007 Salable Quantity—153,390 pounds. This figure is 7 percent of the adjusted 2006-2007 allotment base of 2,191,287 pounds.

(G) Second Revision to the 2006-2007 Salable Quantity and Allotment Percentage:

(1) Increase in Allotment Percentage—2 percent. The Committee recommended a 2 percent increase at its February 21, 2007, meeting.

(2) 2006-2007 Allotment Percentage—55 percent. This figure is derived by adding the increase of 2 percent to the first revised 2006-2007 allotment percentage of 53 percent.

(3) Calculated Revised 2006-2007 Salable Quantity—1,205,208 pounds. This figure is 55 percent of the adjusted 2006-2007 allotment base of 2,191,287 pounds.

(4) Computed Increase in the 2006-2007 Salable Quantity—43,826 pounds. This figure is 2 percent of the adjusted 2006-2007 allotment base of 2,191,287 pounds.

The 2006-2007 marketing year began on June 1, 2006, with an estimated carry-in of 82,675 pounds of salable oil. When the estimated carry-in is added to the revised 2006-2007 salable quantity of 1,161,382 pounds, a total estimated available supply for the 2006-2007 marketing year of 1,244,057 pounds results. Of this amount, 1,130,872 pounds of oil has already been sold or committed for the 2006-2007 marketing year, which leaves 113,185 pounds available for sale. As of February 15, 2007, the reserve pool is estimated at 223,880 pounds.

In making this recommendation, the Committee considered all available information on price, supply, and demand. The Committee also considered reports and other information from handlers and producers in attendance at the meeting and reports given by the Committee Manager from handlers and producers who were not in attendance. On average, handlers estimate that there is demand for an additional 30,000 pounds to 50,000 pounds of Native spearmint oil for the 2006-2007 marketing year. The Committee was reluctant to increase the salable quantity any more due to the relatively low demand; however the Committee believed that an increase was necessary since handlers expressed their difficulty in finding spearmint oil available for sale. It was also reported that approximately 30,000 pounds to 80,000 pounds of Native spearmint oil was poor quality or re-distilled to improve its chemical composition. Therefore, the industry may not be able to meet market demand without this increase. In addition, when the Committee made its original recommendation for the establishment of the Native spearmint oil salable quantity and allotment percentage for the 2006-2007 marketing year, it had anticipated that the year would end with an ample available supply.

Based on its analysis of available information, USDA has determined that the salable quantity and allotment percentage for Scotch spearmint oil for the 2006-2007 marketing year should be increased to 2,984,817 pounds and 153 percent, respectively. In addition, USDA has determined that the salable quantity and allotment percentage for Native spearmint oil for the 2006-2007 marketing year should be increased to 1,205,208 pounds and 55 percent, respectively.

This rule relaxes the regulation of Scotch and Native spearmint oil and will allow producers to meet market demand while improving producer returns. In conjunction with the issuance of this rule, the Committee's revised marketing policy statement for the 2006-2007 marketing year has been reviewed by USDA. The Committee's marketing policy statement, a requirement whenever the Committee recommends implementing volume regulations or recommends revisions to existing volume regulations, meets the intent of § 985.50 of the order. During its discussion of revising the 2006-2007 salable quantities and allotment percentages, the Committee considered: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) prospective production of each class of oil; (4) total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Conformity with USDA's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” has also been reviewed and confirmed.

The increases in the Scotch and Native spearmint oil salable quantity and allotment percentage allows for anticipated market needs for both classes of oil. In determining anticipated market needs, consideration by the Committee was given to historical sales, and changes and trends in production and demand.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are eight spearmint oil handlers subject to regulation under the order, and approximately 58 producers of Scotch spearmint oil and approximately 90 producers of Native spearmint oil in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $6,500,000, and small agricultural producers are defined as those having annual receipts of less than $750,000.

Based on the SBA's definition of small entities, the Committee estimates that two of the eight handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the international trading of essential oils and the products of essential oils. In addition, the Committee estimates that 19 of the 58 Scotch spearmint oil producers and 21 of the 90 Native spearmint oil producers could be classified as small entities under the SBA definition. Thus, a majority of handlers and producers of Far West spearmint oil may not be classified as small entities.

The Far West spearmint oil industry is characterized by producers whose farming operations generally involve more than one commodity, and whose income from farming operations is not exclusively dependent on the production of spearmint oil. A typical spearmint oil-producing operation has enough acreage for rotation such that the total acreage required to produce the crop is about one-third spearmint and two-thirds rotational crops. Thus, the typical spearmint oil producer has to have considerably more acreage than is planted to spearmint during any given season. Crop rotation is an essential cultural practice in the production of spearmint oil for weed, insect, and disease control. To remain economically viable with the added costs associated with spearmint oil production, most spearmint oil-producing farms fall into the SBA category of large businesses.

Small spearmint oil producers generally are not as extensively diversified as larger ones and as such are more at risk to market fluctuations. Such small producers generally need to market their entire annual crop and do not have the luxury of having other crops to cushion seasons with poor spearmint oil returns. Conversely, large diversified producers have the potential to endure one or more seasons of poor spearmint oil markets because income from alternate crops could support the operation for a period of time. Being reasonably assured of a stable price and market provides small producing entities with the ability to maintain proper cash flow and to meet annual expenses. Thus, the market and price stability provided by the order potentially benefit the small producer more than such provisions benefit large producers. Even though a majority of handlers and producers of spearmint oil may not be classified as small entities, the volume control feature of this order has small entity orientation.

This rule further increases the quantity of Scotch and Native spearmint oil that handlers may purchase from, or handle for, producers during the 2006-2007 marketing year, which ends on May 31, 2007. This rule increases the 2006-2007 marketing year salable quantities and allotment percentages for Scotch and Native spearmint oil to 2,984,817 and 153 percent, and 1,205,208 pounds and 55 percent, respectively.

An econometric model was used to assess the impact that volume control has on the prices producers receive for their commodity. Without volume control, spearmint oil markets would likely be over-supplied, resulting in low producer prices and a large volume of oil stored and carried over to the next crop year. The model estimates how much lower producer prices would likely be in the absence of volume controls.

The recommended allotment percentages, upon which 2006-2007 producer allotments are based, are 153 percent for Scotch (a 108 percentage point increase from the original allotment percentage of 45 percent) and 55 percent for Native (a 9 percentage point increase from the original allotment percentage of 46 percent). Without volume controls, producers would not be limited to these allotment levels, and could produce and sell additional spearmint oil. The econometric model estimated a $1.37 decline in the season average producer price per pound of Far West spearmint oil (combining the two classes of spearmint oil) resulting from the higher quantities that would be produced and marketed if volume controls were not used.

A previous price decline estimate of $1.49 per pound was based on the original 2006-2007 allotment percentages (45 percent for Scotch and 46 percent for Native) published in the Federal Register on April 5, 2006 (71 FR 16986). The revised estimate reflects the impact of the additional quantities that will be made available by this rule compared to the original allotment percentages. In actuality, this rule will make available 13,026 additional pounds of Scotch and 21,624 additional pounds of Native spearmint oil, since not all producers have reserve pool oil. Loosening the volume control restriction resulted in the smaller price decline estimate of $1.37 per pound.

The use of volume controls allows the industry to fully supply spearmint oil markets while avoiding the negative consequences of over-supplying these markets. The use of volume controls is believed to have little or no effect on consumer prices of products containing spearmint oil and will not result in fewer retail sales of such products.

Based on projections available at the meeting, the Committee considered alternatives to each of the increases. The Committee not only considered leaving the salable quantity and allotment percentage unchanged, but also looked at various increases. The Committee reached each of its recommendations to increase the salable quantity and allotment percentage for Scotch and Native spearmint oil after careful consideration of all available information, and believes that the levels recommended will achieve the objectives sought. Without the increases, the Committee believes the industry would not be able to meet market needs.

This rule will not impose any additional reporting or recordkeeping requirements on either small or large spearmint oil handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. In addition, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule.

The AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

The Committee's meeting was widely publicized throughout the spearmint oil industry and all interested persons were invited to attend the meeting and participate in Committee deliberations. Like all Committee meetings, the February 21, 2007, meeting was a public meeting and all entities, both large and small, were able to express their views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html . Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

This rule invites comments on changes to the salable quantities and allotment percentages for Scotch and Native spearmint oil for the 2006-2007 marketing year. Any comments received will be considered prior to finalization of this rule.

After consideration of all relevant material presented, including the Committee's recommendation, and other information, it is found that this interim final rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) This rule increases the quantity of Scotch and Native spearmint oil that may be marketed during the marketing year which ends on May 31, 2007; (2) the current quantity of Scotch and Native spearmint oil may be inadequate to meet demand for the 2006-2007 marketing year, thus making the additional oil available as soon as is practicable will be beneficial to both handlers and producers; (3) the Committee recommended these changes at a public meeting and interested parties had an opportunity to provide input; and (4) this rule provides a 60-day comment period and any comments received will be considered prior to finalization of this rule.

On November 3, 2005, SBA published proposed rules to revise and update regulations on liquidating and litigating SBA 7(a) and 504 loans (70 FR 66800, November 3, 2005). The initial period for public comment ended on January 6, 2006, but was reopened for additional comments on January 25, 2006. The extended comment period ended on February 24, 2006.

In total, SBA received 138 responses to the proposed regulations. Of these, 133 were submitted by SBA lender participants (“Lenders”) or Certified Development Company (“CDC”) principals, two of the comments were submitted by Lender and CDC trade association representatives, two were submitted by third-party service providers, and one was submitted by the Chairman of the House Committee for Small Business.

One hundred eleven of the 138 respondents were generally opposed to portions of the proposed regulations. Lenders were virtually unanimous in expressing their objection to SBA requiring them to complete the liquidation of all collateral securing a defaulted SBA loan before requesting SBA's purchase of its guaranteed portion. Lenders and CDCs also objected to the proposed rule provision under which Lenders and CDCs would have deemed to have given their consent, for loans made on or after the effective date that later go into default, to sell the defaulted loans in an asset sale. CDC commenters generally did not object to the principles behind having CDCs liquidate defaulted loans, but believed the rules lacked sufficient detail on their implementation for the lending community. The most prevalent comment focused on the need to compensate CDCs that perform liquidation and litigation activities.

Five general comments were received in relation to the proposed definition of an Authorized CDC Liquidator to be included in § 120.10. One comment expressed a view that the definition as written is too restrictive and that the liquidation function should be a fundamental requirement for all CDC participants. SBA has decided to retain the definition as proposed to provide CDCs and SBA with the flexibility to obtain necessary expertise in liquidations.

Seven comments were submitted opposing the proposed definition in § 120.10 for Loan Program Requirements. The comments centered on concerns regarding program compliance and potential denial of an SBA guarantee resulting from interpretations of outdated standard operating procedures (“SOPs”), policy notices, and other loan documentation forms provided by SBA. Another commenter stated that including SOPs, Notices and Forms in the definition raises these items for enforcement purposes to a status equivalent to regulations without granting participants adequate notice and the right to submit comments. A third comment challenges the enforceability of Agency SOPs and notices in legal actions before a court of law, with the lender remaining unconvinced that lender compliance with respect to dynamic changes in SBA procedures or policy would be enforceable. A final commenter felt the proposed definitions could be another way to reinforce that Lenders should rely solely on written instruction and not expect direct assistance from SBA representatives.

SBA acknowledges the dynamic nature of SOPs, Agency Notices and other policy and procedural guidelines. However, SBA's proposed definition is not designed to create conditions for releasing itself of the obligation to purchase its guaranteed portion of 7(a) loans. The definition was drafted to build awareness of all the related material the Agency provides to participants in SBA's loan programs. SOPs and Agency Notices are released by SBA to aid lenders in understanding current policy, procedures, and processes. These documents can be issued only after internal Agency clearance, including reviews by offices engaged in measuring Agency risk and compliance with Congressional intent. Forms and other documents are also subject to periodic Office of Management and Budget (“OMB”) review to measure regulatory burden and the impact on small businesses. These reviews ensure that SBA is reasonable in its program delivery. SBA also believes that by incorporating these additional elements in the definition, it will prompt more attention by program participants to stay abreast of changing program requirements, including those brought about through the Agency's periodic reassessment of its loan programs.

In addition, this definition merely codifies current law and practice in a more clearly stated form. CDCs are already held to the substance of this definition. Section 120.826, which was enacted through notice and comment rulemaking in 2003, states that CDCs “must operate in accordance with all 504 program requirements imposed by statute, regulation, SOPs, policy and procedural notices, loan authorizations, debentures, and agreements between the CDC and SBA.”

Lenders are also already held to the substance of this definition. Lenders sign a Loan Guarantee Agreement which requires a lender to comply with SBA's “rules and regulations.” Section 120.524(a)(1) states that SBA may deny liability under a 7(a) loan if lender has failed to comply materially with “any of the provisions of these regulations, the Loan Guarantee Agreement, or the Authorization.” The National 7(a) Loan Authorization Boilerplate (paragraph E) states that SBA's guarantee on each 7(a) loan is contingent upon the lender's compliance with current SOPs.

It is for these reasons that the proposed rule is therefore adopted as written.

Proposed § 120.180 revised the current § 120.180 to clarify that Loan Program Requirements in effect when a Lender or CDC undertook a specific action with respect to a given 7(a) or 504 loan will govern that action. The proposed rule makes use of the new term Loan Program Requirements in order to better specify the rules which govern an SBA loan financing transaction. No comments were received in reference to this rule, and thus the rule is adopted as final.

Proposed new § 120.181 clarifies that Lenders or CDCs and their contractors are independent contractors and that SBA is not responsible for their actions. Two comments in support and ten comments in opposition to this proposed regulation were received. Support was general in nature, with no specific reasons cited. Comments in opposition to the proposed regulation noted a CDC's past inability to represent SBA in legal proceedings, SBA legal staff coordination issues, and also raised the issue of the availability of liability insurance for firms engaged in liquidation and litigation activity. The matter of legal representation of the SBA's interest in CDC litigation is granted by Congress in § 510(c)(1)(B) of the Small Business Investment Act. Pursuant to the statute, CDCs are to litigate any matter related to the performance of liquidation and foreclosure functions in a reasonable and sound manner according to commercially accepted practices pursuant to a litigation plan approved in advance by SBA. The concern about coordination with SBA legal staff would be resolved through SBA's review and action on the liquidation and litigation plan provided by the CDC pursuant to revised § 120.540. The Agency is not aware of any lack of availability of liability insurance for CDCs since this has not been a problem with Lenders participating in the 7(a) program. The new rule is thus adopted as proposed.

Proposed new § 120.197 imposes a notification requirement to the SBA Office of Inspector General by all Lenders, CDCs, Borrowers and others when instances of fraud may have occurred. Twenty comments were received on this proposed regulation, three in support and 17 in opposition. One commenter who opposed the regulation stated that it appears to extend beyond the scope and intent of this regulatory action, and suggested it be treated as a separate matter. Another opposing commenter echoed the sentiments of many in identifying this notification requirement as another Suspicious Activity Reporting System (“SARS”) requirement already required of federal depository institutions. A commenter qualified his support of the proposal, insisting that this requirement be enforced upon bank and non-bank lenders alike. A fourth comment opposed to the proposal focused on the Agency's pursuit of lenders unaware of a fraudulent action and whether the Lender, absent factual evidence, should have timely reported suspected fraud.

SBA has provided similar guidance in the past to Lenders, CDCs, and SBA personnel in program operating procedures. These guidelines were useful when SBA underwrote much of the 7(a) and 504 loan portfolio. With current loan activity, however, predominantly delivered through delegated authority processes such as the Preferred Lender Program (“PLP”), the Preferred Certified Lender Program (“PCLP”), and SBAExpress, the element of ensuring program integrity and a level of accountability shifts to the program participants. This new rule formalizes the reporting requirement into regulation for program participants. § 120.197 is retained as proposed.

Minor revisions to § 120.440 received no substantive comments and are therefore revised as proposed.

SBA received two comments in support of the revisions proposed for § 120.453. The proposed rule amends the heading and the existing regulation on PLP lender servicing, and directs the reader to revised subpart E for general instruction on SBA loan servicing responsibilities. SBA is adopting the revisions as proposed.

In the proposed rule, § 120.500 along with §§ 120.510-120.513 were to be deleted. Additionally, a revision to the heading preceding this section was to be revised. Section 120.500 was a general introductory paragraph regarding general loan administration policies applicable to both loan servicing and loan liquidation. No comments were received and the section is deleted as proposed. No comments were received regarding the name change in the heading for Subpart E. The heading for this Subpart is now changed to read Servicing and Liquidation, and is adopted as proposed.

Section 120.510 pertains to the servicing of SBA direct loans and immediate participation loans under the 7(a) program. SBA no longer makes direct or immediate participation loans and received no comments on its proposed deletion. SBA deletes this section as proposed.

Section 120.511 identifies the Lender as the entity responsible for servicing SBA guaranteed loans, holding Loan Instruments, and accepting borrower payments of principal and interest. These responsibilities have been revised and incorporated into standards for loan servicing for Lenders in new § 120.536. No comments were received regarding this proposed deletion. The existing regulation is therefore deleted.

Existing § 120.512 describes Lender responsibilities for servicing and liquidating an SBA loan in the 7(a) program once SBA has purchased its guaranteed interest. This regulation requires Lenders with loans for which SBA has purchased the guaranteed portion to submit liquidation plans on each loan to SBA for approval. The regulation also provides SBA with the discretionary authority to service or liquidate these loans and to have Lenders assign to SBA the related Loan Instruments. Lender liquidation responsibilities for all SBA loans have been reformatted as standards set forth in new § 120.535. The requirement for submission of liquidation plans for 7(a) guaranteed loans has been eliminated except for loans processed as CLP loans, which, by statute, still require the submission of liquidation plans to SBA. Finally, discretionary authority for SBA to service and liquidate loans where it has purchased the guaranteed portion has been incorporated into new § 120.535(d). No comments were received, thus in recognition of the revisions, SBA is deleting the existing regulation in § 120.512.

Current § 120.513 outlines servicing actions requiring SBA's prior written consent. The proposed rule amends these requirements and promulgates the revised regulations under new § 120.536. SBA received no comments and is therefore deleting the existing regulation.

In § 120.520, SBA proposed to amend the heading for the section; reuse the existing subsection, and add two new subsections. Section 120.520(a) detailed SBA's proposal to require Lenders in the 7(a) program to liquidate all collateral securing a defaulted SBA guaranteed loan prior to requesting SBA purchase of its guaranteed portion. The requirement to liquidate collateral first would only apply to loans made on or after May 14, 2007, with loans made prior to the date subject to SBA guarantee purchase provisions in place at the time the loan was approved. SBA received 62 comment letters opposing this proposal as written. The primary objection centered on the adverse financial effects imposed on Lenders arising from delaying guarantee purchase until all collateral recoveries have been exhausted. One commenter said Lenders will be forced to carry the SBA portion as a non-performing asset, and that this will require greater regulatory capital reserves. Another commenter stated that it would be detrimental to a potential borrower (and the local economy) for SBA guaranteed loans not to be made not because of the lack of a government backed guarantee, but because of the time and cost that it takes to claim the guarantee.

SBA has considered the arguments presented by the commenters and seeks a reasonable alternative that improves the Agency's ability to manage its portfolio without hampering the Lenders' ability to participate in the 7(a) program. SBA notes the high volume of loan activity generated by its Lenders over the last five years and seeks to effectively manage the increased volume with the Agency's limited program resources. In modifying processes and procedures, SBA is adapting to the changing environment for small business lending and allowing lenders to perform more lending functions on SBA's behalf. Nonetheless, streamlined delivery methods and SBA's greater reliance on its lending partners has not lessened the Agency's attention to its fiscal management responsibilities for its loan programs and to the public.

In recognition of the adverse financial impact that could be experienced by Lenders, SBA has decided to allow Lenders to request purchase without the full disposition of all related loan collateral. Since comments objecting to a full liquidation prior to SBA purchase cited the work effort and legal restrictions associated with real property collateral disposition, SBA will allow real property to be liquidated subsequent to purchase, but will still require all chattels (business personal property) to be liquidated prior to purchase. To ensure consistent interpretation with existing regulations, SBA will also allow Lenders to request purchase on a defaulted loan when the small business borrower files for bankruptcy protection and a period of at least 60 days has elapsed since the last full installment payment. SBA believes that a nine month period following purchase, after which Lenders will be deemed to have consented to SBA's sale of a purchased loan pursuant to new § 120.546, will generally provide Lenders with a reasonable period of time for addressing the activity needed to liquidate most remaining collateral in an orderly manner. Also, Lenders will continue to have the option to delay submitting a purchase request if they desire to liquidate real estate collateral prior to an SBA loan sale. Section 120.520(a) is revised to incorporate these changes resulting from the comments received.

Proposed new § 120.520(b) codified existing SBA policy regarding documentation requirements sufficient for SBA to determine if purchase of the guarantee is warranted. One commenter objected to the rule stating that the determination of what is sufficient for SBA is somewhat vague, and that the regulation should direct the Lender to particular Agency procedures or instruction guides. SBA noted that the proposed rule referred to new § 120.524 as SBA's justification for determining if purchase is warranted and that this regulation included the Lenders' requirement to comply materially with any Loan Program Requirements including statutes, regulations, SOPs, SBA notices and applicable forms. SBA believes this level of instruction is sufficient for program participants. The regulation is therefore adopted as proposed.

New § 120.520(c) clarifies SBA policy that a Lender's failure to perform all necessary servicing and liquidation actions subsequent to SBA's purchase of the guaranteed portion of a loan from the secondary market may lead to initiation of action to recover money SBA paid to the Registered Holder. Thirty-five comments were received all opposing the proposed regulation. Some felt the action of Lenders to purchase the guaranteed portion of their loans from the secondary market would threaten the true sale nature of other guaranteed portions sold to Registered Holders. SBA believes this premise to be inaccurate inasmuch as SBA lenders have always had the option to purchase defaulted loans. SBA does not pressure lenders to purchase loans nor is it necessary for a lender to purchase loans to protect its reputation in the industry. SBA believes the comments mask the real issue of SBA's ability to seek out documentation in a post-purchase review, and the remedies available to the Agency if such documentation is not provided by Lenders that have already received payment of the guaranteed portion.

The regulation is a codification of a long standing policy where SBA has sought repayment from Lenders that did not properly process, close, and service loans sold in the secondary market. This regulation sets out the requirement that a Lender provide a loan status report as well as documentation that SBA deems necessary to make a determination that the loan was processed, closed, and serviced in compliance with SBA rules and regulations.

Therefore, we conclude that codification of this long-standing policy will have no effect on the true sale nature of secondary market transactions.

Lenders have always been required to provide documentation needed by the SBA to justify the purchase. As indicated, this rule merely codifies existing Lender responsibilities to assist SBA in providing the documentation requested by SBA to affirm that its purchase of the guaranteed portion was based on the Lender's compliance with program requirements. To reinforce SBA's need to provide timely submission of documents, the rule alerts Lenders that SBA will consider the Lender's actions in conjunction with their continued participation in the Secondary Market. SBA retains its rights to suspend or revoke Secondary Market participation if it feels the Lender is not in full compliance with this regulation. Accordingly, SBA has added a sentence to point out the importance of post-purchase document submission and the rule is otherwise adopted as proposed.

No substantive comments were received regarding new rule § 120.520(d) relating to SBA's retention of rights of recovery in connection with the new rule. The rule is adopted as proposed.

Revised § 120.522(b)(1) seeks to limit SBA's obligation to pay accrued interest on loans requested for guarantee purchase. This limit applies to loans made on or after October 1, 2006, and will limit interest purchased to be no more than 120 days. SBA received 42 comments opposing the proposed rule. Commenters stated that the time limit would unnecessarily force ill-advised liquidations instead of accommodating workouts with borrowers. SBA encourages its Lenders to continue to work with SBA borrowers through periods of temporary difficulty and to provide short-term deferments or other assistance in appropriate situations. However, this limitation on interest to be paid is intended to help streamline and standardize SBA's purchase review process for the benefit of its participant Lenders, and already is a part of program requirements for SBAExpress loans. For other types of loans under existing regulations, a Lender may receive payment from SBA for more than 120 days interest only if the Lender submits a complete purchase request to SBA within 120 days of the earliest uncured payment default. Lenders that have submitted complete purchase packages within 120 days of default have historically involved a small percentage of loans. Determinations as to what may constitute complete purchase requests in specific situations have unnecessarily delayed overall purchase processing to the detriment of Lenders as a whole. Accordingly, SBA is adopting the 120 day interest limitation as set forth in the proposed regulation, and is deleting existing § 120.522(d) as proposed.

Revised § 120.524(a)(1) amends the current provision in the regulations and codifies SBA policy that when a Lender is not in material compliance with the Loan Program Requirements as defined in § 120.10, SBA at its discretion may be released from liability under a loan guarantee. Seventeen comments were received in opposition to this proposed revision. One commenter said that this rule would discourage Lenders from taking collateral that is difficult to perfect, and that a denial of liability by the Agency for lender noncompliance absent a verifiable loss would decrease program participation. Another comment stated that wide gaps in interpretation will harm the liquidation process and that this proposed rule removes any rational flexibility. Another commenter felt the rule as drafted is far too broad and is not fair to the participants. SBA has thoroughly considered the comments, but has decided to retain the rule with no changes. The rule does nothing more than incorporate the new definition of Loan Program Requirements and thereby clarifies the intent of the existing regulation while making clear to Lenders what sources of authority will be applied. The view that SBA would look to use this revision to avail itself of its right to deny liability is strikingly narrow and inconsistent with the approach to guarantee purchases applied by the Agency. SBA continually strives for uniformity in its purchase processes, employing supervisory and legal reviews, and quality assurance assessments in the Agency's purchase centers. These factors have reduced the number of complaints received from Lenders regarding varied interpretations of SBA liquidation and guarantee purchase policy. SBA does not anticipate a significant change in the number of denials of liability annually as a result of this rule. The rule thus is retained as proposed.

Revised § 120.524(a)(8) proposed extending the time within which a Lender can request guarantee purchase to 180 days following the maturity date on the SBA loan, or the end of all liquidation and debt collection activities. SBA received one comment in support of this proposal and is adopting the rule as proposed.

SBA received no comments on proposed § 120.524(b) and (d) and is adopting them as proposed.

Proposed rule § 120.535 outlined the standards for the servicing and liquidation of SBA loans. Fewer than six comments were received for each subparagraph, all in opposition to some section of the rule. One commenter objected to the unilateral authority of the SBA to take over servicing and liquidation from a Lender; however, this authority exists already in the current regulations and also in the SBA Form 750, Loan Guarantee Agreement. Upon consideration of the comments provided, SBA adopts the rule as proposed with an additional sentence at the end of each subparagraph emphasizing that the standard applies to all Lenders and CDCs irrespective of whether or not they normally manage a non-SBA portfolio.

There were no substantial comments received in reference to proposed new § 120.536 and the rule is adopted as proposed.

The Proposed rule re-designated §1A120.540 as § 120.545 and added a new § 120.540 devoted to SBA loan liquidation. Amended § 120.540(a) described SBA's oversight responsibilities for monitoring efforts by Lenders and Authorized CDCs to dispose of collateral. No comments were received opposing the rule by which SBA seeks to clarify Lender liquidation reporting responsibilities. By statute, all SBA loans made through the CLP delivery process by Lenders authorized to make CLP loans require liquidation plans to be submitted to SBA for defaulted loans. This requirement is different from the liquidation wrap-up report required of all Lenders for their completed SBA defaulted loan recoveries. The rule therefore is adopted as proposed.

Proposed § 120.540(b) specified the requirement for submission of written liquidation plans for prior SBA approval. As proposed, all Authorized CDC Liquidators, and Lenders that have made an SBA loan under the CLP delivery method, are required to submit a written liquidation plan to SBA for prior approval. Twelve comments were received in opposition to this proposed rule. The focus of the commenters' objections centered on PLP lender liquidation activities and the need for SBA to exempt the PLP lender from this rule. The rule, however, pertains to loans approved under the CLP delivery method irrespective of the lender's designation. As mentioned above, CLP loan liquidations require the statutory submission of a liquidation plan for prior written approval. SBA is unable to change this practice without a change in legislation. SBA retains the text of the rule as proposed.

Proposed § 120.540(c) provided guidance on litigation involving SBA loans. Eighteen comments were received on this proposed rule, one in support and 17 in opposition. Comments in opposition tended to focus on the number of legal matters contained in the definition of Non-Routine litigation and its limit on costs and expenses of $10,000. Commenters acknowledged SBA's proposal to increase the dollar amount of legal fees considered to be for Routine Litigation, however, some comments sought an even higher threshold amount. SBA has reviewed the comments, but has retained the rule as proposed. It has been the Agency's experience that most legal matters in excess of $10,000 are in fact, non-routine and rarely involve actions that are not in dispute.

No substantive comments were received regarding amended § 120.540(d) regarding SBA's ability to take over debt collection litigation of a 7(a) or 504 loan and thus the regulation is adopted as written.

In amended § 120.540(e), SBA provided a process for Lenders and CDCs to amend previous liquidation and litigation plans. One comment opposed this proposed amendment stating that the litigation rules and procedures as revised by the proposal will continue to increase the need for SBA to review and approve litigation plans on a repeated basis during the course of a matter [which] will cause significant delays. SBA agrees with the suggestion that the revised regulations are likely to increase the work involving liquidation and litigation. SBA's experience, however, has been that in many non-routine litigation cases, the increase in fees was not cost effective to the Agency when compared with actual recoveries. This proposed rule therefore is necessary to protect the Agency and preserve taxpayer funds arising from liquidation recoveries. The rule is adopted with no changes.

No comments were received regarding amended §§ 120.540(f) and (g). Amended § 120.540(f) provided SBA with a waiver of requirements in amended paragraphs (b),(c) and (e) of this section in cases requiring immediate actions and decisions. New § 120.540(g) provided an appeals process for Lenders with CLP loans and for Authorized CDC Liquidators when they disagreed with a decision by SBA regarding a proposed liquidation plan. The rules are retained as proposed.

New § 120.541(a) provided timelines for SBA approval of liquidation and litigation plans submitted by Lenders and CDCs. This section also states the timelines for actions specified in new § 120.536(b)(5) and § 120.536(b)(6) which are established by statute with respect to CDCs. These timelines differ from the ten day timeline found in new § 120.541(c) which is mandated by § 7(a)(19) of the Small Business Act. SBA is making minor technical corrections to the cross-references stated in the proposed rules. One commenter objected to the proposed new rule citing the potential impact on recoveries that may result from CDCs waiting for a 15-day approval from SBA, and the potential for these approval periods to be extended indefinitely. The commenter is encouraged to review statutory requirements placed on SBA if it is unable to respond within 15 business days. § 510(c)(2)(E) of the Small Business Investment Act requires SBA to provide a written notice of no decision stating the reasons for the SBA's inability to act on the plan or request, along with an estimate of the additional time needed by SBA to act on the plan or request, and the nature of any additional information or documentation impeding the SBA from acting on the plan or request. Also, SBA reporting requirements to Congress as mandated in § 510(e)(2)(E) create a quality control check on SBA's progress in reaching an expedient decision to Lenders and CDCs. Thus, the rule is adopted as proposed.

New § 120.542 regulated the payment of legal fees and other expenses in conjunction with defaulted SBA loans. Thiry-four comments were received regarding this new rule, one in support and 33 in opposition. Twenty-eight of the 33 comments submitted in opposition are from CDC principals, or the industry's trade association representative. In the proposed rule, SBA had specifically requested comments from CDCs on this issue. Commenters objected to CDCs assuming risk and responsibilities for liquidation and litigation activity, yet not being adequately compensated for their additional involvement. One commenter could not understand why a CDC would request these new responsibilities under the proposed compensation scenario. Another commenter recommended that SBA define by task the items that it believes should be routine and under the $5,000 cap. A third commenter felt that in applying § 120.542(a)(2) of the proposed rule, conflicts may occur on whether SBA specifically directed CDCs to take action which could lead to a violation under proposed rule § 120.542 (b)(2). A fourth commenter felt that SBA should compensate CDCs for the additional expenses associated with locating and selecting liability insurance protection for the work it will assume on SBA's behalf.

SBA has evaluated the comments provided and agrees that some form of compensation is warranted for requiring a CDC to incorporate the liquidation function into its CDC's practice. Commenters supported the position taken by the CDC trade association that involves compensation as a percentage of proceeds received from recoveries subject to a cap of $25,000. Having fees derived from recoveries and not from the unpaid principal balance on a loan is responsive to SBA's policy objective that liquidation fees paid to CDCs should be based on work performed in the recovery process. The suggestion of a monetary cap, while noteworthy in concept, would be counterproductive in practice. Authorized CDC liquidators could limit their liquidation activities to the $25,000 threshold, and would lose incentive to seek recoveries beyond this discrete limit. With much of a liquidator's upfront time and effort incurred irrespective of the loan size, SBA sees a real benefit to maximizing recoveries for Authorized CDC liquidators as well as the SBA. The Agency, however, recognizes a time element to liquidation in which, as time goes on, the additional recovery potential is overshadowed by a decrease in the value of the underlying asset. In an effort to retain a real incentive to liquidators while limiting the practice of avoiding final disposition of a collateral asset, SBA has agreed to allow Authorized CDC liquidators to use net recoveries on the defaulted CDC debenture as a base unit for computing a fee for liquidation activity. SBA initially will allow a percentage of net recoveries not to exceed 10%, with the fee dropping by at least 50% after the first $25,000 in fee income is realized. SBA will evaluate these fee percentages from time to time, and provide notice of a change in permissible fee percentages when appropriate through notice published in the Federal Register . SBA would also look for all liquidation activity to be completed within nine months of SBA's purchase of the CDC debenture. This would amount to eleven months after the date of default, and would conform to similar timetables for Lenders liquidating real property in the 7(a) program.

To accomplish this change, SBA has inserted a new § 120.542(c). SBA has re-designated proposed § 120.542(c) and § 120.542(d) as § 120.542(d) and § 120.542(e) and implements the section as proposed. The new § 120.542(c) would provide CDCs with guidance on the form of compensation acceptable to SBA for CDC loan liquidation activity. This would not include SBA compensating the CDC for liability insurance coverage. SBA views that element as a normal cost of doing business and provides no similar relief to Lenders in the 7(a) program.

The issue of legal fee compensation for work performed by Authorized CDC Liquidators on behalf of the Agency involves several factors. SBA welcomes the use of qualified counsel to address legal matters affecting the Agency's ultimate recovery. SBA is not, however, in a position to provide Authorized CDC Liquidators with unbridled authority to incur substantial legal fees. SBA needs to be able to weigh prospective recovery options against the costs of securing those recoveries and only approve those actions which best serve the needs of the Agency. Since SBA purchases the full amount of the defaulted CDC debenture, SBA is the sole financial beneficiary of the recovery efforts. Consequently SBA is unwilling to modify the proposed rules regarding payment by SBA of legal fees, and adopts §§ 120.542(a) and (b) as proposed.

New § 120.546 proposed conditions under which SBA would have the opportunity to include defaulted SBA loans in an asset sale process. SBA received one comment in support and 31 comments in opposition to the proposed rule. Commenters objected to new § 120.546(b)(1)(i) which provides for implied consent to an asset sale if Lenders request SBA to purchase the guaranteed portion of a loan directly from the Registered Holder in a secondary market transaction. The option to purchase a loan from the secondary market investor, which exists already, would be the only way for a Lender to avoid this outcome. Many small Lenders objected to this option, noting that the capital needed to purchase the guaranteed portion from the secondary market is comprised of funds that otherwise would have been available for additional small business lending. These same Lenders added that the increased level of non-performing assets would have detrimental capital consequences and would serve as the impetus for leaving the program. Other commenters stated that forced asset sales inevitably cause lenders to participate with a third party, not the SBA, and greatly reduces flexibility in reaching a workout with a small business. Comments also focused on whether these purchases from the secondary market jeopardize the accounting of these transactions as true sales, and if Lenders would have to retain the guaranteed portion of the loan on their books even if sold in a secondary market transaction.

SBA has evaluated the comments and has modified its proposal in this final rule with respect to 7(a) loans sold on the Secondary Market. SBA recognizes the possibility that under some circumstances recoveries from sales of collateral and foreclosure proceedings arranged prior to SBA's purchase of the loan from the Registered Holder might be higher than recoveries from a sale of that loan in an asset sale. In the final rule, SBA retains the provision that deems the Lender to have consented to an asset sale for loans approved on or after the effective date of this regulation for which the Lender subsequently sells the guraranteed portions in the secondary market that later default and are purchased by SBA from the Registered Holder. SBA, however, adds a new subparagraph which gives Lenders the option, regardless of the fact that they already are deemed to have consented to the asset sale, to request SBA withhold the loan from such a sale based on a pending sale of collateral or the existence of an existing foreclosure proceeding. The Lender will have 15 business days from the date of SBA's purchase to submit such a request. Liquidation actions contemplated but not underway at the time of SBA's purchase will not be sufficient justification for withholding a loan from inclusion in an asset sale. SBA will consider the Lender's request and, in SBA's sole discretion, SBA may provide the Lender with limited additional time to complete loan restructuring and/or liquidation activities.

SBA also revises § 120.546(b)(1) by adding two additional subparagraphs one to include defaulted SBA loans where SBA has purchased its guaranteed portion from the Lender and nine months have elapsed from the date of SBA's purchase, and the other to give Lenders the option of giving written consent to an asset sale for those Lenders that determine this form of asset disposition to be in their best interest.

Regardless of the circumstances leading up to an asset sale, the Lender is not released from its obligations to continue to properly service and liquidate the loan up to the point the loan is transferred in an asset sale. A new subparagraph (b)(4) has been added to the final rule to this effect. Finally, Lenders that wish to pursue additional recovery on loans after the nine-month period subsequent to purchase always have the option to repay the guaranty purchase amount disbursed by SBA, and release SBA from further participation in the loan.

New § 120.546(c)(1) extends similar guidance on the sale of defaulted PCLP Loans. Since SBA purchases the full amount of the defaulted debenture, the rule does not require PCLP CDC consent. Thirteen comments were received, all in opposition to the regulation. One commenter stated that since PCLP CDCs have reserves established for loan losses, they should have some say in the decision to initiate an asset sale on a defaulted CDC loan. SBA's loss exposure in a defaulted CDC debenture is larger than that of the PCLP CDC. Therefore, the Agency believes it is in the SBA's best interest to take control of the disposition of the defaulted asset. In those instances where a PCLP CDC can demonstrate to SBA's satisfaction that an asset sale should be withheld in favor of an imminent liquidation event, SBA may further examine its avenues for recovery. Notwithstanding these circumstances, SBA will determine the course of disposition for the defaulted debenture. The regulation is therefore adopted without change.

New § 120.546(c)(2) grants SBA, upon its purchase of a Debenture, and in its sole discretion, the right to sell the defaulted SBA loan in an asset sale. Thirteen comments objecting to this proposed rule were received. The comments centered on the perceived loss of a local presence to coordinate an orderly liquidation of the loan and the diminution of value that would result from an SBA asset sale. However, SBA may solicit from the CDC that originated a particular loan the CDC's views concerning how to best maximize recovery from the loan with regard to the timing of including that loan in an asset sale. SBA will retain the provision in the final rule granting the Agency the authority, in its sole discretion, to sell a defaulted 504 loan in an asset sale.

Amended § 120.826 revises the basic requirements for operating a CDC to include, if authorized by SBA, liquidating and litigating 504 loans. SBA received one comment in support of the regulation and nine opposed to the proposal. Those opposed to the proposed revision cite a lack of preparedness, training and source of income for CDCs to perform these functions. One commenter felt that the agency must issue more specific Loan Program Requirements for CDCs before attempting to mandate that CDCs adhere to what are now somewhat general standards. Another stated that since there are published guidelines for liquidation, SBA should provide CDCs with a litigation plan format for use in submitting such plans. A small CDC acknowledged that it does not have the staff, expertise or funds to properly maintain litigation and liquidation functions, stating that if the CDC were to be forced to pay for the liquidation procedure out of pocket without compensation from the SBA, it would cause serious hardship for the CDC.

Much of the revised text in the regulation incorporates the Loan Program Requirements definition discussed above and the authorization of CDC liquidators. Commenters are concerned that some of the identified source documents are outdated and may lead to inadvertent confusion with CDCs attempting to assume liquidation and litigation activities. SBA is well aware of the need for CDC training and will work with the industry to develop comprehensive course materials to provide a baseline competency level. SBA legal staff likewise will assist in the development of training materials and reporting requirements to SBA. This support will help those CDCs that recognize the importance of their contribution to this exercise and give each CDC an opportunity to comply with this regulation. As noted above in the discussion of § 120.546, SBA has revised the rule to allow for compensation in some instances. In all other respects, SBA will retain the regulation as proposed.

Revised §§ 120.841, 120.845, and 120.846 were revised to make minor changes to incorporate the use of the Loan Program Requirements definition in the qualification for ALP and PCLP status. No substantive comments were received and the regulations are adopted as proposed.

Amended § 120.848 revised subparagraphs (a) and (f) to incorporate the use of the Loan Program Requirements definition and to cross-reference this regulation with the servicing regulations now contained in Subpart E. With just two comments received among the 138 respondents over the expanded 60 day review period, SBA adopts the regulation as proposed.

Section 120.854(a)(2) was amended in the proposed rule to identify material non-compliance with any Loan Program Requirement as grounds for enforcement action against a CDC. SBA received a number of general comments opposing this regulation on the grounds that the statement is too vague, open to interpretation, and needs clarification. The revised paragraph proposed is only a technical change in the wording of what is already established as the determinants for enforcement actions against a CDC. Thus, the regulation is adopted as proposed.

Amended § 120.970(a) was a minor revision proposed to incorporate the use of the Loan Program Requirements in the general subparagraph and to cross-reference this regulation with servicing regulations now contained in Subpart E. SBA received no substantive comments on this revision and adopts the text in the final rule.

New § 120.975 identified the CDC entities that are eligible to become Authorized CDC Liquidators. Section 120.975(a) covered those requirements for PCLP CDCs to be designated Authorized CDC Liquidators. Five comments were received in opposition to the proposed regulation, two were received in support. One commenter objecting to the proposed regulation stated that there is no rationale for requiring them to handle non-PCLP liquidation cases just because they are involved in the PCLP program. Another commenter said that all CDCs, not just PCLP CDCs, should be engaged in 504 loan liquidation and litigation either directly with qualified staff, or by agreement with a qualified third-party provider acceptable to SBA. Those commenters in support of the proposal have the existing capability to perform the functions and simply request that the compensation be reflective of the effort involved in the exercise.

In proposing the regulation, SBA adhered to the provisions of § 510(b)(1)(ii) of the Small Business Investment Act (“the SBI Act”). That statute specifies that all PCLP CDCs operating under § 508 of the SBI Act be deemed eligible, subject to having experienced staff or using an approved contractor. The statute does not limit PCLP CDCs to liquidating and litigating only PCLP loans. The regulation conditions PCLP CDCs' authority to liquidate and litigate their non-PCLP loans by requiring the entity to meet one of two operational criteria. SBA believes most, if not all PCLP CDCs, would meet one of these two criteria and would be required to use their delegated authority to liquidate and handle debt collection litigation. Given the diversity of opinion on this proposal, and the decreased SBA staff devoted to 504 loan liquidation and litigation activity, SBA has decided to retain § 120.975(a) as proposed in the final rule.

New § 120.975(b) provided guidance on all other CDCs becoming Authorized CDC Liquidators. Eight comments were filed on this subparagraph, two in support and six in opposition to the regulation. Some of those objecting to the proposal stressed the limited resources they have for fulfilling this function and the hardship it will likely cause. Others felt no need to promulgate separate qualification requirements because they support having all CDCs as Authorized CDC Liquidators. Once again, the criteria followed the language of the SBI Act, and thus are retained as proposed. SBA recognizes the concerns expressed by smaller CDCs and will work closely with industry leaders to ensure that training resources are available and to identify qualified third-party providers for those unable to staff these functions internally.

New § 120.975(c) added a legal counsel qualification requirement to ensure that SBA is aware of the parties engaged in debt collection litigation on behalf of the Agency. No meaningful comments were received regarding this requirement and the regulation is adopted as proposed.

New § 120.975(d) established the process for CDCs to make application for authority to liquidate and litigate. No substantive comments were received on this subparagraph and the regulation is adopted as proposed.

Compliance With Executive Orders 12866, 12988, and 13132, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork Reduction Act (44 U.S.C., Ch. 35).

The Office of Management and Budget has determined that this rule constitutes a “significant regulatory action” under Executive Order 12866 thus requiring Regulatory Impact Analysis, as set forth below.

The objective of the final rule is to clarify and make uniform SBA's existing regulations governing lenders participating in the 7(a) business loan program (Lenders) and Certified Development Companies (CDCs) that are performing loan servicing, liquidation and debt collection litigation. Parts of the rule have been drafted in response to a statutory directive arising from Pub. L. 106-554. Other parts of the final rule have been written as a codification of both longstanding Agency policy, and new direction in the area of liquidation and debt collection. The final rule will promote better understanding of Agency requirements by Lenders and CDCs, and improve oversight and management by SBA of Lender and CDC liquidation and debt collection litigation.

SBA 7(a) loan programs presently require Lenders to submit liquidation plans for most defaulted loans, except for those made pursuant to the SBAExpress program. SBA estimates that these requirements currently result in the submission of about 4,000 liquidation plans per year. The approximate time needed for lenders to complete a liquidation plan is two hours at an average cost of $30 per hour, resulting in a total annual cost to Lenders of $240,000.

Presently, CDCs that are authorized to perform liquidation activities on 504 loans submit about 100 liquidation plans per year. The approximate time needed for CDCs to complete a liquidation plan is two hours at an average cost of $30 per hour, resulting in a total annual cost to CDCs of $6,000.

SBA's 7(a) loan programs also presently require Lenders to submit litigation plans to SBA for approval. Lenders currently submit to SBA approximately 3,000 litigation plans per year. Preparation of each plan takes about one hour, at an average cost of $150 per hour for private counsel time, for a total annual cost to Lenders of $450,000. SBA reimburses Lenders for their share of reasonable, customary and necessary attorney fees, including those incurred for the preparation of litigation plans. CDCs submit to SBA only a small number of litigation plans presently, because SBA currently handles most litigation involving 504 loans.

SBA takes an average of one hour to review and respond to each liquidation and litigation plan submitted by Lenders and CDCs. This equates to 4,000 hours for Lender liquidation plans at an average cost of $30 per hour, for a total of $120,000. For review of CDC liquidation plans by SBA, 100 hours is required at an average cost of $30 per hour, for a total of $3,000. For Lender litigation plans, 3,000 hours of SBA review time is required at an average cost of $30 per hour, for a total of $90,000. SBA processes approximately 54,000 servicing and liquidation actions per year for Lenders and CDCs. The average action takes one-half hour for SBA to process, for a total of 27,000 hours processing time. At $30 per hour, this equates to a total cost to SBA of $810,000. Therefore, the total administrative cost to SBA under the current regulatory framework for these activities is approximately $1,023,000.

The rule would provide benefits for Lenders because it reduces the costs associated with submitting liquidation plans to SBA for review and approval. The only subprogram unaffected by the final rule would be for those loans approved under the Certified Lenders Program which by statute require the submission of a liquidation plan to SBA. Submission of liquidation plans is currently required for most lending programs by SBA procedures and regulations. SBA estimates that ending this requirement will enable Lenders to eliminate the preparation and submission to SBA of at least 4,000 liquidation plans a year. The approximate time to complete and submit a plan to SBA is about two hours at an average cost of $30 per hour. Consequently, eliminating the requirement to submit liquidation plans will save Lenders about $240,000 per year.

Other benefits for Lenders would result from the proposal to raise the dollar threshold for non-routine litigation (for which submission to SBA for pre-approval is required) from $5,000 to $10,000. With the higher dollar threshold, Lenders would be required to submit fewer litigation plans to SBA. The Agency anticipates that approximately 500 fewer plans annually would be required to be submitted to the Agency as a result of this change. Because preparation of each plan takes about one hour at an average cost of $150 per hour, SBA estimates that the enactment of the final rule would result in a cost savings of $75,000.

Finally, the final rule would reduce the operational costs associated with preparing requests for loan servicing and liquidation actions taken by Lenders that require prior SBA approval. These changes would simplify and reduce the costs of loan servicing and liquidation processes for Lenders.

SBA does not know of any specific costs that would be imposed on Lenders as a result of this rule except for the loss of income that would result from the limitation of interest on guarantees purchased by SBA to 120 days. It has, however, been SBA's experience in tracking the receipt of completed guarantee purchase request filings that such a limitation would affect only a small percentage (estimated at around 10%) of SBA guaranty purchases. In review of the comments to the proposed rule, Lenders objected to this limitation, viewing it as an encroachment on a source of income. SBA would like to note that current accounting practices generally limit the accrual of interest on defaulted loans to 90 days, and that after that date the loan would be placed in non-accrual status. This loss expressed by Lenders in their comments to the proposed rule relates to SBA bringing its program provisions into greater conformance with more traditional banking practices.

In the proposed rule, SBA sought comment on any monetized quantitative or qualitative costs of Lenders' compliance with the rule. One comment filed by the Chairman of the House Small Business committee felt the proposed rule did not properly detail the indirect effects of the rule on small businesses. The thrust of the comment centered on the adverse impact the rule would have on small lenders and CDCs, and consequently local small business concerns. The committee Chairman felt the increased administrative burden resulting from these proposed changes to existing regulations would drive Lenders and CDCs from the program thus contracting the available sources of small business capital. According to the comment, this second order level of analysis must be performed lest the Congress initiate legislation to enjoin the regulations from taking effect.

SBA wishes to thank the Chairman for providing comment to the proposed rule, and would like to outline its response. In his comment letter, the Chairman identified the proposed rule as a modification of the existing regulatory structure that has proven successful in implementing the Small Business Act and the Small Business Investment Act. As it is, the final rule pertaining to CDC liquidation and debt collection activity performed by qualified CDCs is consistent with the statutory requirements mandated by § 510 of the Small Business Investment Act. In the preamble to the proposed rule, SBA explained the basis for the lengthy delay in fulfilling the legal mandate to promulgate regulations consistent with the statute. This final rule fulfills the Agency's responsibility to Congress under the Act. CDCs will retain the option to conduct their own liquidation and debt collection activity or to utilize a services of another CDC. The final rule also devises a form of compensation that offsets the additional operational costs associated with implementation of a liquidation function.

SBA acknowledges the Chairman's comments regarding the adverse impact the proposed rules could have on small 7(a) lenders that would be required to liquidate all collateral before seeking SBA purchase of the guarantee. SBA has decided to modify the final rule to require only the liquidation of business personal property (chattels) prior to seeking purchase. If a Lender only has business real property pledged against the SBA loan, the Lender can seek either a request for guarantee purchase or may elect to liquidate the property first. This option is presently available in the existing regulations cited in the comments as being successful in implementing the Small Business Act and the Small Business Investment Act.

As provided by statute, this final rule would enable qualified CDCs to seek authority to perform liquidation and debt collection litigation, and by doing so, qualified CDCs would be determining that the benefits of conducting their own recovery on defaulted loans would outweigh any burdens associated with the preparation and submission to SBA of liquidation and litigation plans as set forth in the final rule. Such benefits would include the ability to pursue quicker liquidations and possibly achieve higher recoveries as a result.

SBA expects that CDCs would incur some additional costs as a result of this rule. SBA anticipates that CDCs would be required to submit to the Agency for approval about 300 liquidation plans per year, an increase of 200 from the approximately 100 liquidation plans CDCs currently submit annually. SBA estimates that the average time for completion of each plan would consist of two hours at an average cost of $30 per hour. Therefore, the annual cost of submitting the plans under the final rule would be $18,000 per year, for an overall cost increase of $12,000 from the $6,000 annual cost under the current regulatory framework. CDCs that receive delegated liquidation authority under the final rule would also incur added costs through acquiring resources and creating the necessary internal structures to engage in liquidation and litigation activities. SBA had sought comments from the public on any other monetized, quantitative or qualitative costs of CDCs' compliance with this rule and has decided on a compensation structure detailed below.

The final rule would benefit SBA because it would eliminate the need for most Lenders to submit liquidation plans to SBA (the exception is for Lenders under the Certified Lenders Program, which are required to submit liquidation plans by statute; the number of liquidation plans submitted by such Lenders currently is minimal, and SBA expects even further reduction under the rule). SBA estimates that ending this requirement would eliminate the need for SBA to review about 4,000 liquidation plans a year. The approximate time required for SBA to review a liquidation plan is one hour at an average cost of $30 per hour. Consequently, there would be a cost savings to SBA of $120,000 per year.

Another benefit for SBA would result from the proposal to raise the dollar threshold for non-routine litigation (for which submission to SBA for pre-approval is required) from $5,000 to $10,000. SBA anticipates that approximately 500 fewer plans annually would be required to be submitted to the Agency as a result of this change. Because review of each plan takes about one hour at an average cost of $30 per hour, SBA estimates that the final rule would result in a cost savings of $15,000. In addition, SBA would not be required to reimburse Lenders for the Agency's proportionate share of the costs incurred by Lenders in connection with the preparation of these litigation plans, resulting in a further savings of approximately $50,000.

Although under the final rule SBA would be required to review liquidation plans submitted by qualified CDCs (estimated at 300 liquidation plans per year), this would not represent a significant increase in SBA administrative costs because currently SBA reviews approximately 100 such plans per year as well as provides assistance to CDCs on the preparation of such plans.

The final rule would also reduce SBA administrative costs associated with oversight of the Agency's business loan assistance programs by delegating greater servicing and liquidation responsibilities to Lenders and CDCs, and reducing their need to seek the prior approval of SBA for their proposed recovery activities and for various specific liquidation actions. This would decrease the amount of time required for SBA personnel to manage these programs. It is estimated that reviews of at least 30% (16,200) of the approximately 54,000 servicing and liquidation actions SBA currently processes annually would be eliminated. This would save an average of one-half hour processing time per action for a total time savings of 8,100 hours at $30 per hour, or $243,000.

In addition to increasing consistency among SBA's loan programs and creating more uniformity in processing guaranty purchase requests, the final rule would save taxpayer dollars by limiting payment of interest on purchased loans to 120 days, except for loans where the guaranteed portion has been sold in the Secondary Market. This change would not be a burden on Lenders because Lenders typically place loans on interest non-accrual after 90 days of delinquency and SBA already limits interest purchased to 120 days in the fastest growing program (SBAExpress). However, it is estimated that such a limitation in the proposed rule would affect only a small percentage (estimated at around 10%) of future SBA guaranty purchases.

Finally, the proposed rule would facilitate SBA's transformation initiative by enabling the sale of groups of 7(a) and 504 loans in asset sales. To this end, the rule provides that Lenders which do not purchase the guaranteed portion of a defaulted 7(a) loan from a Registered Holder in the Secondary Market and have SBA purchase the guaranteed portion will have provided their consent for SBA to include the loan in an asset sale. This may turn out to be the most cost-effective approach for Lenders, particularly those with limited capital or operational resources to complete the liquidation exercise. Asset sales would also be available to CDCs, including those operating with limited funding since a sale may be the most expedient approach to disposing of defaulted loans.

Costs imposed on SBA as a result of the rule would include personnel and administrative costs associated with implementing appeals processes to which Lenders and Authorized CDC Liquidators may be entitled under the final rule when they disagree with a decision by an SBA field office or servicing center regarding a liquidation or litigation plan, when they disagree with an SBA determination to deny reimbursement of liquidation or litigation fees or costs, or when SBA denies applications from non-PCLP CDCs requesting authority to handle liquidation and debt collection litigation.

This final rule is SBA's best available means for achieving its regulatory objective of clarifying and making uniform existing SBA regulations and policy, which currently only partially address liquidation and debt collection litigation and vary across Agency lending programs.

With respect to CDCs that are eligible for and request liquidations and debt collection authority from SBA, the rule merely implements § 307(b) of Pub. L. 106-554, which requires SBA to promulgate regulations to carry out § 510 of the SBI Act, 15 U.S.C. 697g, regarding CDC liquidation and debt collection litigation authority. SBA considers those statutory provisions applicable to CDCs to be mandatory, and SBA has not identified any reasonable alternative to this proposed rule implementing the statutory mandate.

This final action meets applicable standards set forth in §§ 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. In particular, the regulations provide for rights of appeal to Lenders and CDCs in the event they are aggrieved by an Agency decision, thereby limiting the possibility of litigation by these entities. The final action does not have retroactive or preemptive effect.

This final rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, for the purposes of Executive Order 13132, SBA has determined that the rule has no federalism implications warranting preparation of a federalism assessment.

This rule directly affects only those CDCs that are eligible for and that request, authority from SBA to conduct liquidation and debt collection litigation, along with an unknown number of small lending institutions. SBA assumes, therefore, that this final rule may have an impact on a substantial number of small entities. However, the rule merely implements statutory mandates and, further, SBA has determined that the impact on entities affected by the rule will not be significant for the reasons set forth below.

The final rule would enable qualified CDCs to seek authority to perform liquidation and debt collection litigation, and by doing so, qualified CDCs would be determining that the benefits of conducting their own recovery on defaulted loans would outweigh any burdens associated with the preparation and submission to SBA of liquidation and litigation plans as set forth in these regulations. Such benefits include the ability to pursue liquidations more quickly and potentially achieve higher loan recoveries. In the loan liquidation pilot program established by the Small Business Programs Improvement Act of 1996, CDCs that conducted their own liquidation achieved a slightly higher overall recovery rate than did SBA in the comparison group of cases handled directly by the Agency.

Subject to the new provisions contained in § 120.542, SBA would also be reimbursing CDCs for their reasonable, customary and necessary expense disbursements related to liquidation activities on particular loans, which would include title reports and title insurance on real estate collateral; appraisals; costs for the care and preservation of collateral; fees for lien recordings, filings and lien searches; and fees for legal services provided by outside counsel in litigating on a particular loan account.

SBA anticipates that approximately 80 of the 270 SBA-approved Certified Development Companies will apply to become Authorized CDC Liquidators. CDCs participating in the Premier Certified Lenders Program (PCLP) would not be required to seek authority to conduct liquidation and debt collection litigation on their PCLP loans since they are already required to do so by statute and regulation. PCLPs, however, will be required to liquidate and litigate their non-PCLP loans by this rule if they are notified by SBA that they meet either of the requirements to be an Authorized CDC Liquidator in order to have one consistent standard for all their loans.

CDCs are expected, by statute, to submit liquidation plans to the Agency for prior written approval. It is also assumed that all CDCs would qualify as a small CDC based on SBA size standards for non-depository, credit intermediaries. Based on the level of current CDC liquidation activity, SBA estimates receiving an industry total of 300 liquidation plans per year compared with a portfolio of over 33,400 outstanding CDC debentures for $11.9 billion as of September 30, 2005. SBA estimates that the average time for completion of each plan will necessitate two hours at an average cost of $30 per hour, which is based on a mid-level professional salary level of $60,000 per year. Therefore, the total annual cost to the CDC industry for all plans submitted would be $18,000 per year. Using a 1 percent default rate on $11.9 billion in debentures outstanding (300 liquidations divided by 33,400 debentures times $11.9 billion outstanding) results in an estimated liquidation portfolio of $119 million. With their debentures representing no more than five percent of the outstanding CDC debenture portfolio at fiscal year end, small CDCs would be no more likely to assume the industry expense burden than larger CDCs. The additional costs from enacting the final rule could be recaptured in liquidation recoveries equivalent to just 2.0% of the estimated debenture balance in default. Based on this assessment, SBA concludes that this final rule will not have a significant impact on small CDCs.

The rule would also not impose a significant economic impact on small lending institutions in the 7(a) program for similar reasons. SBA size standards for small banks, savings institutions and credit unions is up to $165 million in total assets. A current review of the outstanding 7(a) loans finds over 95% of the SBA portfolio held by 400 of 5,200 registered lender participants, each of them larger in size than the stated size standard for small depository lending institutions. Most liquidations will be undertaken by the more active lenders whose total assets or average annual receipts far exceed the size standard for credit intermediaries. Consequently, this group will also incur the majority of liquidation expenses associated with collateral dispositions, leaving small lending institutions marginally impacted by this final rule. Small lenders that decide to sell the guaranteed portion of an SBA loan in the secondary market could actually benefit from the savings associated with the use of an asset sales mechanism. This benefit is derived from the availability of an asset disposition alternative that may be less costly for small lenders than the effort and expenses involved in planning, preparing and implementing a loan liquidation exercise. The low level of loan activity from small lenders may have a marginal overall effect on the program, but for individual small lenders the savings may be meaningful.

SBA recognizes that not all small lenders will opt for implied consent and will purchase the guaranteed interest from the secondary market. This purchase exercise, and the related cost of liquidating the SBA loan could increase the marginal costs of operating in the program; however, until SBA has more definitive data on which of the two options small lenders actually select, the impact on small lenders is indeterminate. SBA will monitor small lender liquidation activity for the next 2 years following enactment of the final rule and will re-examine its burden analysis on small lenders at that time to determine if changes are necessary.

SBA's assessment of the impact on small lenders filing a written request to have SBA to refrain from selling the unguaranteed portion of a defaulted loan in an asset sale is referenced in the discussion of the Paperwork Reduction Act detailed below.

Lenders would also realize a cost savings associated with eliminating the need to submit liquidation plans to SBA (except for Lenders under the Certified Lenders Program which are required to submit liquidation plans by statute), which is currently required by SBA procedures and regulations. SBA estimates that ending this requirement will enable Lenders to eliminate the preparation and submission to SBA of at least 4,000 liquidation plans a year. The approximate time to complete and submit these plans to SBA is about two hours at an average cost of $30 per hour. The average cost is based on a mid-level professional salary level of $60,000 per year. Consequently, eliminating the requirement to submit liquidation plans will save Lenders about $240,000 per year. The rule also reduces the number of loan servicing and liquidation actions taken by Lenders that require prior SBA approval as compared with existing SBA requirements, and makes the remaining prior approval requirements similar among the various SBA loan programs, thereby simplifying the loan servicing and liquidation process for SBA participating Lenders. In addition, as pointed out above, small lending institutions will be required to submit fewer litigation plans since the proposed rule raises the dollar threshold for Non-Routine Litigation from $5,000 to $10,000. SBA anticipates that approximately 500 fewer plans will be required to be submitted to the Agency as a result of this change. Since preparation of each plan takes about one hour at an average cost of $150 per hour, which is based on a nationwide estimate of the billing level for attorneys qualified to perform this type of work, SBA estimates that the final rule will result in a cost savings of $75,000.

In addition, this regulation merely codifies the existing SBA practice of requiring the submission of liquidation and litigation plans by Lenders and CDCs, but reduces any burden from this requirement as to litigation plans by raising the dollar threshold for Non-Routine Litigation from $5,000 to $10,000, as noted above. Further, the performance standards for 7(a) and 504 loan servicing and liquidation contained in these regulations merely codify existing SBA policy as set forth in SOPs and currently existing lending standards. In addition, it is a prudent lending practice for Lenders to prepare plans prior to undertaking liquidation and debt collection litigation. Therefore, this rule does not impose any new or unnecessary requirements on these small entities.

It is for these aforementioned reasons that SBA certifies that this final rule will not have a significant economic impact on a substantial number of small entities.

SBA has determined that this rule imposed additional reporting or recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C. Ch. 35; (1) Application for Liquidation Authority; (2) the Liquidation Plan; (3) the Litigation Plan; and (4) Request for Emergency Waiver. SBA received twenty comments objecting to the estimates used by SBA in its Paperwork Reduction Act analysis pertaining to authorizing CDCs to liquidate and litigate, and preparing liquidation and litigation plans acceptable to SBA. In complying with the Paperwork Reduction Act, SBA is obligated to address the estimated time taken by the public to complete the forms recommended for use. The information requested by SBA is maintained by Lenders in the normal course of their daily liquidation activity. SBA is requesting the Lenders disclose what they would readily have available in operating a liquidation function of a commercial lending practice. SBA is cognizant of the preparation work involved in a liquidation report filing, but does not view the form filing as taking more than 2 hours of work by a mid-level professional.

When evaluating the burden associated with filing litigation plans, SBA looks only to those instances when loan recovery through litigation is probable. SBA is also considering only those contemplated legal actions as non-routine in nature. When this level of filtering is applied to an estimate of the annual number of initial liquidations filed with SBA, the total cost estimate of $450,000 per year is reasonable.

The final rule provides Lenders with a limited opportunity to request SBA refrain from including the unguaranteed portion of an SBA loan with the SBA-purchased guaranteed portion in an asset sale conducted or overseen by SBA. This written notice would include an explanation supporting the Lender's request and would take the form of a simple letter. SBA has determined that this level of effort does not give rise to a cost analysis under the Paperwork Reduction Act.

Thus, based on its review of these proposed liquidation activities, SBA maintains that its estimates used in determining the costs of additional reporting or recordkeeping requirements under the Paperwork Reduction Act are accurate. SBA therefore makes no changes to the information collections in this final rule. In addition, SBA has submitted these information collections to OMB for review and will publish a notice in the Federal Register announcing the results of the review.

Background

On June 4, 2002, Dassault Aviation, 9 rond Point des Champs Elysees, 75008, Paris, France, applied for FAA type certificate for its new Model Falcon 7X airplane. The Dassault Model Falcon 7X airplane is a 19 passenger transport category airplane powered by three aft mounted Pratt & Whitney PW307A high bypass ratio turbofan engines. Maximum takeoff weight will be 63,700 pounds, and maximum certified altitude will be 51,000 feet with a range of 5,700 nautical miles. The airplane is operated using a fly-by-wire (FBW) primary flight control system. This will be the first application of a FBW primary flight control system in an airplane primarily intended for private/corporate use.

The Dassault Aviation Model Falcon 7X design incorporates equipment that was not envisioned when part 25 was created. This equipment includes side stick controllers, and an electronic flight control system that provides flight envelope protection. Therefore, special conditions are required that provide the level of safety equivalent to that established by the regulations.

Under the provisions of 14 CFR 21.17, Dassault Aviation must show that the Model Falcon 7X airplane meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-108.

If the Administrator finds that the applicable airworthiness regulations do not contain adequate or appropriate safety standards for the Model Falcon 7X airplane because of novel or unusual design features, special conditions are prescribed under the provisions of § 21.16.

In addition to the applicable airworthiness regulations and special conditions, the Dassault Model Falcon 7X airplane must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36.

The FAA issues special conditions, as defined in § 11.19, under § 11.38, and they become part of the type certification basis under § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design features, these special conditions would also apply to the other model under § 21.101.

The Dassault Falcon 7X airplane will incorporate the following novel or unusual design features:

• Side stick controllers;

• Electronic flight control system: lateral-directional and longitudinal stability, low energy awareness,

• Electronic flight control system: flight control surface position awareness,

• Electronic flight control system: flight characteristics compliance via the handling qualities rating method (HQRM);

• Flight envelope protection: general limiting requirements,

• Flight envelope protection: high incidence protection function,

• Flight envelope protection: normal load factor (g) limiting,

• Flight envelope protection: pitch, roll, and high speed limiting functions.

Because of these rapid improvements in airplane technology, the applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. Therefore, in addition to the requirements of part 25, subparts C and D, the following special conditions apply.

The Falcon 7X will use side stick controllers for pitch and roll control. Regulatory requirements for conventional wheel and column controllers, such as requirements pertaining to pilot strength and controllability, are not directly applicable to side stick controllers. Certain ergonomic considerations such as armrest support, freedom of arm movement, controller displacement, handgrip size and accommodations for a range of pilot sizes are not addressed in the regulations. In addition, pilot control authority may be uncertain, because the side sticks are not mechanically interconnected as with conventional wheel and column controls. Pitch and roll control force and displacement sensitivity must be compatible, so that normal inputs on one control axis will not cause significant unintentional inputs on the other.

These special conditions require that the unique features of the side stick must be demonstrated through flight and simulator tests to have suitable handling and control characteristics.

In lieu of compliance with the regulations pertaining to lateral-directional and longitudinal stability, these special conditions ensure that the Model Falcon 7X will have suitable airplane handling qualities throughout the normal flight envelope.

The unique features of the Model Falcon 7X flight control system and side stick controllers, when compared with conventional airplanes with wheel and column controllers, do not provide conventional awareness to the flightcrew of a change in speed or a change in the direction of flight. These special conditions require that adequate awareness be provided to the pilot of a low energy state (low speed, low thrust, and low altitude) below normal operating speeds.

a. Lateral-Directional Static Stability: The electronic flight control system (EFCS) on the Falcon 7X contains fly-by-wire control laws that result in neutral lateral-directional static stability. Therefore, the conventional requirements of the regulations are not met.

The Model Falcon 7X airplane has a flight control design feature within the normal operational envelope in which side stick deflection in the roll axis commands roll rate. As a result, the stick force in the roll axis will be zero (neutral stability) during the straight, steady sideslip flight maneuver of § 25.177(c) and will not be “substantially proportional to the angle of sideslip,” as required by the regulation.

With conventional control system requirements, positive static directional stability is defined as the tendency to recover from a skid with the rudder free. Positive static lateral stability is defined as the tendency to raise the low wing in a sideslip with the aileron controls free. These special conditions are intended to accomplish the following:

• Provide additional cues of inadvertent sideslips and skids through control force changes.

• Ensure that short periods of unattended operation do not result in any significant changes in yaw or bank angle.

• Provide predictable roll and yaw response.

• Provide acceptable level of pilot attention (i.e., workload) to attain and maintain a coordinated turn.

b. Longitudinal Static Stability: The longitudinal flight control laws for the Falcon 7X provide neutral static stability within the normal operational envelope. Therefore, it is inappropriate to require the airplane design to comply with the static longitudinal stability requirements of §§ 25.171, 25.173, and 25.175.

Static longitudinal stability on conventional airplanes with mechanical links to the pitch control surface means that a pull force on the controller will result in a reduction in speed relative to the trim speed, and a push force will result in higher than trim speed. Longitudinal stability is required by the regulations for the following reasons:

• Speed change cues are provided to the pilot through increased and decreased forces on the controller.

• Short periods of unattended control of the airplane do not result in significant changes in attitude, airspeed, or load factor.

• A predictable pitch response is provided to the pilot.

• An acceptable level of pilot attention (i.e., workload) to attain and maintain trim speed and altitude is provided to the pilot.

• Longitudinal stability provides gust stability.

The pitch control movement of the side stick is a normal load factor or “g” command which results in an initial movement of the elevator surface to attain the commanded load factor. That movement is followed by integrated movement of the stabilizer and elevator to automatically trim the airplane to a neutral (1g) stick-free stability. The flight path commanded by the initial side stick input will remain stick-free until the pilot gives another command. This control function is applied during “normal” control law within the speed range from the speed at the angle of attack protection limit to initiation of the angle of attack protection limit. Once outside this speed range, the control laws introduce the conventional longitudinal static stability as described above.

As a result of neutral static stability, the Falcon 7X does not meet the part 25 requirements for static longitudinal stability. It would not be appropriate to apply the conventional part 25 requirements for static longitudinal stability to the unconventional control systems of the Falcon 7X. These special conditions require that the airplane be shown to have suitable static longitudinal stability in any condition normally encountered in service.

c. Low Energy Awareness: Static longitudinal stability provides an awareness to the flightcrew of a low energy state (low speed and thrust at low altitude). Past experience on airplanes fitted with a flight control system which provides neutral longitudinal stability shows there are insufficient feedback cues to the pilot of excursion below normal operational speeds. The maximum angle of attack protection system limits the airplane angle of attack and prevents stall during normal operating speeds, but this system is not sufficient to prevent stall at low speed excursions below normal operational speeds. Until intervention, there are no stability cues because the airplane remains trimmed. Additionally, feedback from the pitching moment due to thrust variation is reduced by the flight control laws. Recovery from a low speed excursion may become hazardous when the low speed is associated with low altitude and the engines are operating at low thrust or with other performance limiting conditions.

Because § 25.173 requires that the pilot receive speed change cues through increased or decreased forces on the controller, it would be inappropriate to apply those requirements for feedback cues to the Falcon Model 7X systems. These special conditions require that the airplane provide adequate awareness of a low energy state to the pilot.

With a response-command type of flight control system and no direct mechanical coupling from cockpit controller to control surface, the controller does not provide the Falcon 7X pilot with an awareness of the actual surface deflection position during flight maneuvers. Some unusual flight conditions, arising from atmospheric conditions or airplane or engine failures or both, may result in full or nearly full surface deflection. Unless the flightcrew is made aware of excessive deflection or impending control surface deflection limiting, the pilot or auto-flight system may encounter situations where loss of control or other unsafe handling or performance characteristics occur.

These special conditions require that suitable annunciation be provided to the flightcrew when a flight condition exists in which nearly full control surface deflection occurs. Suitability of such a display must take into account that some pilot-demanded maneuvers (e.g., rapid roll) are necessarily associated with intended full or nearly full control surface deflection. Therefore, simple alerting systems which function in both intended or unexpected control-limiting situations must be properly balanced between needed crew awareness and nuisance warnings.

The Model Falcon 7X airplane will have an electronic flight control system (EFCS). This system provides an electronic interface between the pilot's flight controls and the flight control surfaces (for both normal and failure states). The system also generates the actual surface commands that provide for stability augmentation and control about all three airplane axes. Because EFCS technology has outpaced existing regulations-written essentially for unaugmented airplanes with provision for limited ON/OFF augmentation-suitable special conditions and a method of compliance are required to aid in the certification of flight characteristics.

These special conditions and the method of compliance presented in Appendix 7, FAA Handling Qualities Rating Method, of AC 25-7A, Flight Test Guide Certification of Transport Category Airplanes, provide a means to evaluate flight characteristics—for example, “satisfactory,” “adequate,” or “controllable”—to determine compliance with the regulations. The HQRM in Appendix 7 was developed for airplanes with control systems having similar functions and is employed to aid in the evaluation of the following:

• All EFCS/airplane failure states not shown to be extremely improbable and where the envelope (task) and atmospheric disturbance probabilities are each 1.

• All combinations of failures, atmospheric disturbance level, and flight envelope not shown to be extremely improbable.

• Any other flight condition or characteristic where 14 CFR part 25 proves to be inadequate for proper assessment of unique Falcon Model 7X flight characteristics.

The Handling Qualities Rating Method provides a systematic approach to the assessment of handling qualities. It is not intended to dictate program size or need for a fixed number of pilots to achieve multiple opinions. The airplane design itself and success in defining critical failure combinations from the many reviewed in Systems Safety Assessments dictate the scope of any HQRM application.

Handling qualities terms, principles, and relationships familiar to the aviation community have been used to formulate the HQRM. For example, we have established that the well-known COOPER-HARPER rating scale and the FAA three-part rating system are similar. This approach on the flying qualities of highly augmented/ relaxed static stability airplanes in relation to regulatory and flight test guide requirements is reported in DOT/FAA/CT-82/130, Flying Qualities of Relaxed Static Stability Aircraft, Volumes I and II.

These special conditions and the following ones-pertaining to flight envelope protection-present general limiting requirements for all the unique flight envelope protection features of the basic Model Falcon 7X Electronic Flight Control System (EFCS) design. Current regulations do not address these types of protection features. The general limiting requirements are necessary to ensure a smooth transition from normal flight to the protection mode and adequate maneuver capability. The general limiting requirements also ensure that the structural limits of the airplane are not exceeded. Furthermore, failure of the protection feature must not create hazardous flight conditions. Envelope protection parameters include angle of attack, normal load factor, pitch angle, and speed. To accomplish these envelope protections, one or more significant changes occur in the EFCS control laws as the normal flight envelope limit is approached or exceeded.

Each specific type of envelope protection is addressed individually in the special conditions that follow.

The Falcon 7X is equipped with a high incidence protection function that limits the angle of attack at which the airplane can be flown during normal low speed operation and that cannot be overridden by the flightcrew. This function prevents the airplane from stalling and therefore, the stall warning system is not needed during normal flight conditions. If there is a failure of the high incidence protection function that is not shown to be extremely improbable, the flight characteristics at the angle of attack for C LMAX must be suitable in the traditional sense, and stall warning must be provided in a conventional manner. These special conditions address these and other unique features of this function on the Model Falcon 7X.

These special conditions define a minimum steady flight speed, V MIN , to be demonstrated during flight test, at which the airplane can develop lift normal to the flight path and equal to its weight at the angle of attack limit of the protection function. It further defines procedures for establishing the reference stall speed, V SR , to be used for defining reference speeds during takeoff and landing.

In the absence of specific regulations in 14 CFR part 25, these special conditions present High Incidence Protection Function requirements for the capability and reliability of the function, stall warning with a failure condition, handling qualities and characteristics at high incidence or angle of attack flight maneuvers, and specific applications of the newly defined V MIN in lieu of current regulations.

The Falcon 7X flight control system design incorporates a normal load factor limiting function on a full time basis that will prevent the pilot from inadvertently or intentionally exceeding the positive or negative airplane limit load factor. This limiting feature is active in the normal flight control mode and cannot be overridden by the pilot. There is no requirement in the regulations for this limiting feature.

This normal load factor limit is unique in that traditional airplanes with conventional flight control systems (mechanical linkages) are limited in the pitch axis only by the elevator surface area and deflection limit. The elevator control power is normally derived for adequate controllability and maneuverability at the most critical longitudinal pitching moment. The result is that traditional airplanes have a significant portion of the flight envelope in which maneuverability in excess of limit structural design values is possible.

Part 25 does not require a demonstration of maneuver control or handling qualities beyond the design limit structural loads. Nevertheless, some pilots have become accustomed to the availability of this excess maneuver capacity in case of extreme emergency, such as upset recoveries or collision avoidance.

Because Dassault has chosen to include this optional design feature on the Falcon 7X, for which part 25 does not contain adequate or appropriate safety standards, special conditions pertaining to this feature are included. These special conditions establish minimum load factor requirements to ensure adequate maneuver capability during normal flight. Other limiting features of the normal load factor limiting function, as discussed above, that affect the upper load limits are not addressed in these special conditions. The phrase “in the absence of other limiting factors” has been added relative to past similar special conditions to clarify that while the main focus is on the lower load factor limits, there are other limiting factors that must be considered in the load limiting function.

The Model Falcon 7X will incorporate pitch attitude and high speed limiting functions via the Electronic Flight Control System (EFCS) normal operating mode. In addition, positive spiral stability and partial pitch compensation will be introduced in the lateral and pitch axes through the control laws for bank angles greater than 35 degrees.

The purpose of the pitch attitude limiting function, in conjunction with the high incidence protection function, is to prevent airplane stall during low speed, high angle of attack excursions.

The high speed limiting protection function prevents the pilot from inadvertently or intentionally exceeding the airplane maximum design speeds, V D /M D . Part 25 does not address such a function that would limit or modify flying qualities in the high speed region.

There are no specific hard limits on the Falcon 7X for bank angle. At bank angles up to 35 degrees, side movement of the controller commands roll rate depending on the amount of deflection. Bank angle is immediately accomplished by the control law function and deflection of the control surfaces. With the stick released to its neutral point, the airplane will maintain the commanded bank angle (neutral spiral stability). Positive spiral stability is introduced at and above 35 degrees band angle such that a stick force is required to maintain bank angle, and releasing the stick will return the airplane to 35 degrees.

In addition to the requirements of § 25.143, this special condition establishes requirements to ensure that pitch and high speed limiting functions do not impede normal maneuvering and that pitch and roll limiting functions do not restrict or prevent attaining bank angles necessary for emergency maneuvering.

Notice of proposed special conditions No. 25-07-06-SC for the Dassault Aviation Model Falcon 7X airplanes was published in the Federal Register on February 26, 2007 (72 FR 8296). No comments were received, and the special conditions are adopted as proposed.

As discussed above, these special conditions are applicable to the Dassault Aviation Model Falcon 7X airplanes. Should Dassault Aviation apply at a later date for a change to the type certificate to include another model on the same type certificate incorporating the same novel or unusual design features, these special conditions would apply to that model as well.

Under standard practice, the effective date of final special conditions would be 30 days after the date of publication in the Federal Register ; however, as the certification date for the Dassault Aviation Model Falcon 7X airplanes is imminent, the FAA finds that good cause exists to make these special conditions effective upon issuance.

This action affects only certain novel or unusual design features on model Falcon 7X airplanes. It is not a rule of general applicability.

The authority citation for these special conditions is as follows:

Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Dassault Aviation Model Falcon 7X airplanes.

In the absence of specific requirements for side stick controllers, the following special conditions apply:

a. Pilot strength: In lieu of the “strength of pilots” limits shown in § 25.143(c) for pitch and roll, and in lieu of the specific pitch force requirements of §§ 25.145(b) and 25.175(d), it must be shown that the temporary and maximum prolonged force levels for the side stick controllers are suitable for all expected operating conditions and configurations, whether normal or non-normal.

b. Pilot control authority: The electronic side stick controller coupling design must provide for corrective and/or overriding control inputs by either pilot with no unsafe characteristics. Annunciation of the controller status must be provided, and must not be confusing to the flightcrew.

c. Pilot control: It must be shown by flight tests that the use of side stick controllers does not produce unsuitable pilot-in-the-loop control characteristics when considering precision path control/tasks and turbulence. In addition, pitch and roll control force and displacement sensitivity must be compatible, so that normal inputs on one control axis will not cause significant unintentional inputs on the other.

d. Autopilot quick-release control location: In lieu of compliance with § 25.1329(d), autopilot quick release (emergency) controls must be on both side stick controllers. The quick release means must be located so that it can readily and easily be used by the flightcrew.

In lieu of the requirements of §§ 25.171, 25.173, 25.175, and 25.177(c), the following special conditions apply:

a. The airplane must be shown to have suitable static lateral, directional, and longitudinal stability in any condition normally encountered in service, including the effects of atmospheric disturbance. The showing of suitable static lateral, directional and longitudinal stability must be based on the airplane handling qualities, including pilot workload and pilot compensation, for specific test procedures during the flight test evaluations.

b. The airplane must provide adequate awareness to the pilot of a low energy (low speed/low thrust/low height) state when fitted with flight control laws presenting neutral longitudinal stability significantly below the normal operating speeds. “Adequate awareness” means warning information must be provided to alert the crew of unsafe operating conditions and to enable them to take appropriate corrective action.

c. The static directional stability—as shown by the tendency to recover from a skid with the rudder free—must be positive for any landing gear and flap position and symmetrical power condition, at speeds from 1.13 V SR1 up to V FE , V LE , or V FC /M FC (as appropriate).

d. In straight, steady sideslips (unaccelerated forward slips), the rudder control movements and forces must be substantially proportional to the angle of sideslip, and the factor of proportionality must be between limits found necessary for safe operation throughout the range of sideslip angles appropriate to the operation of the airplane. At greater angles—up to the angle at which full rudder control is used or a rudder pedal force of 180 pounds (81.72 kg) is obtained—the rudder pedal forces may not reverse, and increased rudder deflection must produce increased angles of sideslip. Unless the airplane has a suitable sideslip indication, there must be enough bank and lateral control deflection and force accompanying sideslipping to clearly indicate any departure from steady, unyawed flight.

In addition to the requirements of §§ 25.143, 25.671 and 25.672, the following special conditions apply:

a. A suitable flight control position annunciation must be provided to the crew in the following situation:

A flight condition exists in which—without being commanded by the crew—control surfaces are coming so close to their limits that return to normal flight and (or) continuation of safe flight requires a specific crew action.

b. In lieu of control position annunciation, existing indications to the crew may be used to prompt crew action, if they are found to be adequate.

a. Flight characteristics compliance determination for electronic flight control system (EFCS) Failure Cases:

In lieu of compliance with § 25.672(c), the HQRM contained in Appendix 7, FAA Handling Qualities Rating Method, of the Flight Test Guide for Certification of Transport Category Airplanes, AC 25-7A (or an equivalent method of compliance found acceptable to the FAA), must be used for evaluation of EFCS configurations resulting from single and multiple failures not shown to be extremely improbable.

The handling qualities ratings are:

(1) Satisfactory: Full performance criteria can be met with routine pilot effort and attention.

(2) Adequate: Adequate for continued safe flight and landing; full or specified reduced performance can be met, but with heightened pilot effort and attention.

(3) Controllable: Inadequate for continued safe flight and landing, but controllable for return to a safe flight condition, safe flight envelope and/or reconfiguration, so that the handling qualities are at least Adequate.

b. Handling qualities will be allowed to progressively degrade with failure state, atmospheric disturbance level, and flight envelope, as shown in Figure 12, “Minimum HQ Requirements,” of Appendix 7. Specifically, for probable failure conditions within the normal flight envelope, the pilot-rated handling qualities must be satisfactory in light atmospheric disturbance and adequate in moderate atmospheric disturbance. The handling qualities rating must not be less than adequate in light atmospheric disturbance for improbable failures.

a. General Requirements.

(1) Onset characteristics of each envelope protection function must be smooth, appropriate to the phase of flight and type of maneuver, and not in conflict with the ability of the pilot to satisfactorily change the airplane flight path, speed, or attitude, as needed.

(2) Limit values of protected flight parameters (and if applicable, associated warning thresholds) must be compatible with the following:

(a) Airplane structural limits,

(b) Required safe and controllable maneuvering of the airplane, and

(c) Margins to critical conditions. Dynamic maneuvering, airframe and system tolerances (both manufacturing and in-service), and non-steady atmospheric conditions—in any appropriate combination and phase of flight—must not result in a limited flight parameter beyond the nominal design limit value that would cause unsafe flight characteristics.

(3) The airplane must be responsive to intentional dynamic maneuvering to within a suitable range of the parameter limit. Dynamic characteristics, such as damping and overshoot, must also be appropriate for the flight maneuver and limit parameter in question.

(4) When simultaneous envelope limiting is engaged, adverse coupling or adverse priority must not result.

b. Failure States: EFCS failures, including sensor failures, must not result in a condition where a parameter is limited to such a reduced value that safe and controllable maneuvering is no longer available. The crew must be alerted by suitable means, if any change in envelope limiting or maneuverability is produced by single or multiple failures of the EFCS not shown to be extremely improbable.

a. Definitions. For the purpose of this special condition, the following definitions apply:

Electronic Flight Control System (EFCS): The electronic and software command and control elements of the flight control system.

High Incidence Protection Function: An airplane level function that automatically limits the maximum angle of attack that can be attained to a value below that at which an aerodynamic stall would occur.

Alpha Limit: The maximum angle of attack at which the airplane stabilizes with the high incidence protection function operating and the longitudinal control held on its aft stop.

V MIN : The minimum steady flight speed is the stabilized, calibrated airspeed obtained when the airplane is decelerated at an entry rate not exceeding 1 knot per second, until the longitudinal pilot control is on its stop with the high incidence protection function operating.

V MIN1g : V MIN corrected to 1g conditions. It is the minimum calibrated airspeed at which the airplane can develop a lift force normal to the flight path and equal to its weight when at an angle of attack not greater than that determined for V MIN .

b. Capability and Reliability of the High Incidence Protection Function

(1) It must not be possible to encounter a stall during pilot induced maneuvers, and handling characteristics must be acceptable, as required by paragraphs e and f below, titled High Incidence Handling Demonstrations and High Incidence Handling Characteristics respectively.

(2) The airplane must be protected against stalling due to the effects of environmental conditions such as windshears and gusts at low speeds, as required by paragraph g, Atmospheric Disturbances, below.

(3) The ability of the high incidence protection function to accommodate any reduction in stalling incidence resulting from residual ice must be verified.

(4) The reliability of the function and the effects of failures must be acceptable, in accordance with § 25.1309 and Advisory Circular 25.1309-1A, System Design and Analysis.

(5) The high incidence protection function must not impede normal maneuvering for pitch angles up to the maximum required for normal maneuvering, including a normal all-engines operating takeoff plus a suitable margin to allow for satisfactory speed control.

c. Minimum Steady Flight Speed and Reference Stall Speed. In lieu of the requirements of § 25.103, the following special conditions apply:

(1) V MIN : The minimum steady flight speed, for the airplane configuration under consideration and with the high incidence protection function operating, is the final stabilized calibrated airspeed obtained when the airplane is decelerated at an entry rate not exceeding 1 knot per second until the longitudinal pilot control is on its stop.

(2) The minimum steady flight speed, V MIN , must be determined with:

(a) The high incidence protection function operating normally.

(b) Idle thrust.

(c) All combinations of flap settings and landing gear positions.

(d) The weight used when V SR is being used as a factor to determine compliance with a required performance standard.

(e) The most unfavorable center of gravity allowable, and

(f) The airplane trimmed for straight flight at a speed achievable by the automatic trim system.

(3) V MIN1g is V MIN corrected to 1g conditions. V MIN1g is the minimum calibrated airspeed at which the airplane can develop a lift force normal to the flight path and equal to its weight when at an angle of attack not greater than that determined for V MIN . V MIN1g is defined as follows:

(4) The Reference Stall Speed, V SR , is a calibrated airspeed selected by the applicant. V SR may not be less than the 1g stall speed. V SR is expressed as:

(5) V CLMAX must be determined with the following conditions:

(a) Engines idling or—if that resultant thrust causes an appreciable decrease in stall speed—not more than zero thrust at the stall speed

(b) The airplane in other respects, such as flaps and landing gear, in the condition existing in the test or performance standard in which V SR is being used.

(c) The weight used when V SR is being used as a factor to determine compliance with a required performance standard.

(d) The center of gravity position that results in the highest value of reference stall speed.

(e) The airplane trimmed for straight flight at a speed achievable by the automatic trim system, but not less than 1.13 V SR and not greater than 1.3 V SR .

(f) [Reserved]

(g) The high incidence protection function adjusted to a high enough incidence to allow full development of the 1g stall.

(h) Starting from the stabilized trim condition, apply the longitudinal control to decelerate the airplane so that the speed reduction does not exceed one knot per second.

(6) The flight characteristics at the angle of attack for C LMAX must be suitable in the traditional sense at FWD and AFT center of gravity in straight and turning flight at IDLE power. Although for a normal production EFCS and steady full aft stick this angle of attack for C LMAX cannot be achieved, the angle of attack can be obtained momentarily under dynamic circumstances and deliberately in a steady state sense with some EFCS failure conditions.

(7) The reference stall speed, V SR , is a calibrated airspeed defined by the applicant. If V SR is chosen equal to V MIN1g , an equivalent safety finding to the intent of § 25.103 may be considered to have been met. The applicant may choose V SR to be less than V MIN1g but not less than V S1g if compensating factors are provided to ensure safe characteristics.

d. Stall Warning.

(1) Normal Operation. If the conditions of paragraph b, Capability and Reliability of the High Incidence Protection Function, of this special conditions are satisfied, a level of safety equivalent to that intended by § 25.207, Stall Warning, must be considered to have been met without provision of an additional, unique warning device.

(2) Failure Cases. Following failures of the high incidence protection function not shown to be extremely improbable, if the function no longer satisfies paragraph b, Capability and Reliability of the High Incidence Protection Function, paragraphs b(1), (2), and (3) of this special condition, stall warning must be provided in accordance with § 25.207. The stall warning should prevent inadvertent stall under the following conditions:

(a) Power off straight stall approaches to a speed 5 percent below the warning onset.

(b) Turning flight stall approaches with at least 1.5g load factor normal to the flight path at entry rate of at least 2 knots per second when recovery is initiated not less than one second after warning onset.

e. High Incidence Handling Demonstrations. In lieu of the requirements of § 25.201, the following special conditions apply:

Maneuvers to the limit of the longitudinal control in the nose up direction must be demonstrated in straight flight and in 30 degree banked turns under the following conditions:

(1) The high incidence protection function operating normally.

(2) Initial power condition of:

(a) Power off.

(b) The power necessary to maintain level flight at 1.5 V SR1 , where V SR1 is the reference stall speed with the flaps in the approach position, the landing gear retracted, and the maximum landing weight. The flap position to be used to determine this power setting is that position in which the stall speed, V SR1 , does not exceed 110% of the stall speed, V SR0 , with the flaps in the most extended landing position.

(3) [Reserved]

(4) Flaps, landing gear and deceleration devices in any likely combination of positions.

(5) Representative weights within the range for which certification is requested, and

(6) The airplane trimmed for straight flight at a speed achievable by the automatic trim system.

f. High Incidence Handling Characteristics. In lieu of the requirements of § 25.203, the following special conditions apply:

(1) In demonstrating the handling characteristics specified in paragraphs (2), (3), (4), and (5) below, the following procedures must be used:

(a) Starting at a speed sufficiently above the minimum steady flight speed to ensure that a steady rate of speed reduction can be established, apply the longitudinal control so that the speed reduction does not exceed one knot per second until the control reaches the stop.

(b) The longitudinal control must be maintained at the stop until the airplane has reached a stabilized flight condition and must then be recovered by normal recovery techniques.

(c) The requirements for turning flight maneuver demonstrations must also be met with accelerated rates of entry to the incidence limit, up to the maximum rate achievable.

(2) Throughout maneuvers with a rate of deceleration of not more than 1 knot per second, both in straight flight and in 30 degree banked turns, the airplane's characteristics must be as follows:

(a) There must not be any abnormal airplane nose-up pitching.

(b) There must not be any uncommanded nose-down pitching that would be indicative of stall. However, reasonable attitude changes associated with stabilizing the incidence at alpha limit as the longitudinal control reaches the stop would be acceptable. Any reduction of pitch attitude associated with stabilizing the incidence at the alpha limit should be achieved smoothly and at a low pitch rate, such that it is not likely to be mistaken for natural stall identification.

(c) There must not be any uncommanded lateral or directional motion, and the pilot must retain good lateral and directional control by conventional use of the cockpit controllers throughout the maneuver.

(d) The airplane must not exhibit buffeting of a magnitude and severity that would act as a deterrent to completing the maneuver.

(3) In maneuvers with increased rates of deceleration, some degradation of characteristics is acceptable, associated with a transient excursion beyond the stabilized alpha-limit. However, the airplane must not exhibit dangerous characteristics or characteristics that would deter the pilot from holding the longitudinal controller on the stop for a period of time appropriate to the maneuvers.

(4) It must always be possible to reduce incidence by conventional use of the controller.

(5) The rate at which the airplane can be maneuvered from trim speeds associated with scheduled operating speeds, such as V 2 and V REF , up to alpha-limit must not be unduly damped or significantly slower than can be achieved on conventionally controlled transport airplanes.

g. Atmospheric Disturbances. Operation of the high incidence protection function must not adversely affect aircraft control during expected levels of atmospheric disturbances or impede the application of recovery procedures in case of windshear. Simulator tests and analysis may be used to evaluate such conditions but must be validated by limited flight testing to confirm handling qualities at critical loading conditions.

h. [Reserved]

i. Proof of Compliance. In addition to the requirements of § 25.21, the following special conditions apply:

The flying qualities must be evaluated at the most unfavorable center of gravity position.

j. Longitudinal Control:

(1) In lieu of the requirements of § 25.145(a) and (a)(1), the following special conditions apply:

It must be possible—at any point between the trim speed for straight flight and V min —to pitch the nose downward, so that the acceleration to this selected trim speed is prompt, with:

The airplane trimmed for straight flight at the speed achievable by the automatic trim system and at the most unfavorable center of gravity;

(2) In lieu of the requirements of § 25.145(b)(6), the following special conditions apply:

With power off, flaps extended and the airplane trimmed at 1.3 V SR1 , obtain and maintain airspeeds between V min and either 1.6 V SR1 or V FE , whichever is lower.

k. Airspeed Indicating System. (1) In lieu of the requirements of § 25.1323(c)(1), the following special conditions apply: V MO to V min with the flaps retracted.

(2) In lieu of the requirements of § 25.1323(c)(2), the following special conditions apply: V min to V FE with flaps in the landing position.

In addition to the requirements of § 25.143(a)—and in the absence of other limiting factors—the following special conditions apply:

a. The positive limiting load factor must not be less than:

(1) 2.5g for the Electronic Flight Control System (EFCS) normal state.

(2) 2.0g for the EFCS normal state with the high lift devices extended.

b. The negative limiting load factor must be equal to or more negative than:

(1) Minus 1.0g for the EFCS normal state.

(2) 0.0g for the EFCS normal state with high lift devices extended.

In addition to § 25.143, the following special conditions apply:

a. Operation of the high speed limiter during all routine and descent procedure flight must not impede normal attainment of speeds up to the overspeed warning.

b. The pitch limiting function must not impede airplane maneuvering, including an all-engines operating takeoff, for pitch angles up to the maximum required for normal operations plus a suitable margin in the pitch axis to allow for satisfactory speed control.

c. The high speed limiting function must not impede normal attainment of speeds up to V MO /M MO during all routine and descent procedure flight conditions.

d. The pitch and roll limiting functions must not restrict nor prevent attaining bank angles up to 65 degrees and pitch attitudes necessary for emergency maneuvering. Positive spiral stability, which is introduced above 35 degrees bank angle, must not require excessive pilot strength on the side stick controller to achieve bank angles up to 65 degrees. Stick force at bank angles greater than 35 degrees must not be so light that over-control would lead to pilot-induced oscillations.

On June 4, 2002, Dassault Aviation, 9 rond Point des Champs Elysees, 75008, Paris, France, applied for an FAA type certificate for its new Model Falcon 7X airplane. The Dassault Model Falcon 7X airplane is a 19 passenger transport category airplane powered by three aft mounted Pratt & Whitney PW307A high bypass ratio turbofan engines. Maximum takeoff weight will be 63,700 pounds, and maximum certified altitude will be 51,000 feet with a range of 5,700 nautical miles. The airplane is operated using a fly-by-wire (FBW) primary flight control system. This will be the first application of a FBW primary flight control system in an airplane primarily intended for private/corporate use.

The Dassault Aviation Model Falcon 7X design incorporates equipment that was not envisioned when part 25 was created. This equipment affects sudden engine stoppage, operation without normal electrical power, and dive speed definition with speed protection system. Therefore, special conditions are required that provide the level of safety equivalent to that established by the regulations.

Under the provisions of 14 CFR 21.17, Dassault Aviation must show that the Model Falcon 7X airplane meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-108.

If the Administrator finds that the applicable airworthiness regulations do not contain adequate or appropriate safety standards for the Model Falcon 7X airplane because of novel or unusual design features, special conditions are prescribed under the provisions of § 21.16.

In addition to the applicable airworthiness regulations and special conditions, the Dassault Model Falcon 7X airplane must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36.

The FAA issues special conditions, as defined in § 11.19, under § 11.38, and they become part of the type certification basis under § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, the special conditions would also apply to the other model under § 21.101.

The Dassault Aviation Model Falcon 7X airplane will incorporate novel or unusual design features that will affect:

• Sudden engine stoppage.

• Operation without normal electrical power.

• Dive speed definition with speed protection system.

These special conditions address equipment which may affect the airplane's structural performance, either directly or as a result of failure or malfunction. These special conditions are identical or nearly identical to those previously required for type certification of other airplane models.

Because of these rapid improvements in airplane technology, the applicable airworthiness regulations do not contain adequate or appropriate safety standards for these design features. Therefore, in addition to the requirements of part 25, subparts C and D, the following special conditions apply.

The Dassault Model Falcon 7X will have high-bypass ratio turbofan engines. Engines of this size were not envisioned when § 25.361, pertaining to loads imposed by engine seizure, was adopted in 1965. Worst case engine seizure events become increasingly more severe with increasing engine size because of the higher inertia of the rotating components.

Section 25.361(b)(1) requires that for turbine engine installations, the engine mounts and the supporting structures must be designed to withstand a “limit engine torque load imposed by sudden engine stoppage due to malfunction or structural failure.” Limit loads are expected to occur about once in the lifetime of any airplane. Section 25.305 requires that supporting structures be able to support limit loads without detrimental permanent deformation, meaning that supporting structures should remain serviceable after a limit load event.

Since adoption of § 25.361(b)(1), the size, configuration, and failure modes of jet engines have changed considerably. Current engines are much larger and are designed with large bypass fans. In the event of a structural failure, these engines are capable of producing much higher transient loads on the engine mounts and supporting structures.

As a result, modern high bypass engines are subject to certain rare-but-severe engine seizure events. Service history shows that such events occur far less frequently than limit load events. Although it is important for the airplane to be able to support such rare loads safely without failure, it is unrealistic to expect that no permanent deformation will occur.

Given this situation, the Aviation Rulemaking Advisory Committee (ARAC) proposed a design standard for today's large engines. For the commonly-occurring deceleration events, the proposed standard requires engine mounts and structures to support maximum torques without detrimental permanent deformation. For the rare-but-severe engine seizure events such as loss of any fan, compressor, or turbine blade, the proposed standard requires engine mounts and structures to support maximum torques without failure, but allows for some deformation in the structure.

The FAA concludes that modern large engines, including those on the Model Falcon 7X, are novel and unusual compared to those envisioned when § 25.361(b)(1) was adopted and thus warrant a special condition. The special condition contains design criteria recommended by ARAC. The ARAC proposal was to revise the wording of § 25.361(b), including §§ 25.361(b)(1) and (b)(2), removing language pertaining to structural failures and moving it to a separate requirement that discusses the reduced factors of safety that apply to these failures.

The Dassault Aviation Model Falcon 7X airplane will have electrical and electronic systems which perform critical functions. The Model Falcon 7X airplane is a fly-by-wire control system that requires a continuous source of electrical power for the flight control system to remain operable, since the loss of all electrical power may be catastrophic to the airplane. The airworthiness standards of part 25 do not contain adequate or appropriate standards for the protection of the Electronic Flight Control System from the adverse effects of operations without normal electrical power.

Section 25.1351(d), “Operation without normal electrical power,” requires safe operation in visual flight rule (VFR) conditions for at least five minutes with inoperative normal power. This rule was structured around a traditional design utilizing mechanical control cables for flight control surfaces and the pilot controls. Such traditional designs enable the flightcrew to maintain control of the airplane, while providing time to sort out the electrical failure, re-start the engines if necessary, and re-establish some of the electrical power generation capability.

The Dassault Aviation Model Falcon 7X airplane, however, will utilize an Electronic Flight Control System for the pitch and yaw control (elevator, stabilizer, and rudder). There is no mechanical linkage between the pilot controls and these flight control surfaces. Pilot control inputs are converted to electrical signals, which are processed and then transmitted via wires to the control surface actuators. At the control surface actuators, the electrical signals are converted to an actuator command, which moves the control surface.

To maintain the same level of safety as that associated with traditional designs, the Dassault Model 7X airplanes with electronic flight controls must not be time limited in their operation, including being without the normal source of electrical power generated by the engine or the Auxiliary Power Unit (APU) generated electrical power.

Service experience has shown that the loss of all electrical power generated by the airplane's engine generators or APU is not extremely improbable. Thus, it must be demonstrated that the airplane can continue safe flight and landing—including steering and braking on ground for airplanes using steer/brake-by-wire—after total loss of normal electrical power with the use of its emergency electrical power systems. These emergency electrical power systems must be able to power loads that are essential for continued safe flight and landing.

Dassault Aviation proposed to reduce the speed margin between V C and V D required by § 25.335(b), based on the incorporation of a high speed protection system in the Model Falcon 7X flight control laws. The Falcon 7X is equipped with a high speed protection system which limits nose down pilot authority at speeds above V C /M C and prevents the airplane from actually performing the maneuver required under § 25.335(b)(1).

Section 25.335(b)(1) is an analytical envelope condition which was originally adopted in Part 4b of the Civil Air Regulations to provide an acceptable speed margin between design cruise speed and design dive speed. Freedom from flutter and airframe design loads is affected by the design dive speed. While the initial condition for the upset specified in the rule is 1g level flight, protection is afforded for other inadvertent overspeed conditions as well. Section 25.335(b)(1) is intended as a conservative enveloping condition for all potential overspeed conditions, including non-symmetric ones.

To establish that all potential overspeed conditions are enveloped, the applicant will demonstrate that the dive speed will not be exceeded during pilot-induced or gust-induced upsets in non-symmetric attitudes.

In addition, the high speed protection system in the Falcon 7X must have a high level of reliability.

Notice of proposed special conditions No. 25-07-07-SC for the Dassault Aviation Model Falcon 7X airplanes was published in the Federal Register on March 1, 2007 (72 FR 9273). No comments were received, and the special conditions are adopted as proposed.

As discussed above, these special conditions are applicable to the Dassault Aviation Model Falcon 7X airplane. Should Dassault Aviation apply at a later date for a change to the type certificate to include another model on the same type certificate incorporating the same novel or unusual design features, these special conditions would apply to that model as well.

Under standard practice, the effective date of final special conditions would be 30 days after the date of publication in the Federal Register ; however, as the certification date for the Dassault Model Falcon 7X is imminent, the FAA finds that good cause exists to make these special conditions effective upon issuance.

This action affects only certain novel or unusual design features on model Falcon 7X airplanes. It is not a rule of general applicability.

We have received reports of excessive propeller vibration, and of damaged or broken propeller blade thrust bearings on Hartzell Propeller Inc. model HC-E4A-3( )/E10950( ) propellers found during routine and investigative propeller disassembly. At least 15 propellers have been reported with broken propeller blade thrust bearings. During teardowns, instances of bearing failures have been progressively more severe, with more internal damage to the hub noted. Service history shows the propellers can safely accumulate 2,000 operating hours time-since-overhaul (TSO) before the unsafe conditions start to appear. A broken thrust bearing can lead to damage to the propeller hub and blade shank, and blade separation from the hub. These damaged or broken parts can also lead to damage to the internal propeller pitch change mechanism, resulting in loss of propeller pitch control or in difficulty in feathering the propeller. This condition, if not corrected, could result in propeller blade separation, damage to the airplane, and possible loss of airplane control. Repairing the propeller blade retention radius using the instructions cited in Hartzell Propeller Inc. Service Bulletin (SB) No. HC-SB-61-287, Revision 2, dated October 24, 2006, allows the propeller to safely operate for 3,000 hours before requiring bearing replacement.

We reviewed and approved the technical contents of Hartzell Propeller Inc. SB No. HC-SB-61-287, Revision 2, dated October 24, 2006. That SB describes procedures for initial and repetitive propeller blade inspection, rework, and thrust bearing replacement, for each blade.

Hartzell Propeller Inc. SB No. HC-SB-61-287, Revision 2, dated October 24, 2006, states in paragraph 3.G.(6) of the Accomplishment Instructions, to install new blade thrust bearings if required. However, this AD removes the option of “if required,” and mandates that operators must always install new blade thrust bearings.

The unsafe condition described previously is likely to exist or develop on other Hartzell Propeller Inc. model HC-E4A-3( )/E10950( ) propellers of the same type design. For that reason, we are issuing this AD to prevent propeller blade separation, damage to the airplane, and possible loss of airplane control. You must use the service information described previously to perform the actions required by this AD.

This AD requires:

• For propellers with 4,000 or more operating hours TSO, initial inspection and rework of the propeller blade retention radius and replacement of the propeller thrust bearing for each blade, within 100 operating hours after the effective date of the AD; and

• For propellers with 2,000 or more operating hours TSO, but fewer than 4,000 operating hours TSO, inspection and rework of the propeller blade retention radius and replacement of the propeller thrust bearing, for each blade, at the next propeller disassembly; and

• Thereafter, after every 3,000 additional operating hours time-in-service, inspection and rework of the propeller blade retention radius and replacement of the propeller blade thrust bearing, for each blade.

You must use the service information described previously to perform the actions required by this AD.

Since an unsafe condition exists that requires the immediate adoption of this AD, we have found that notice and opportunity for public comment before issuing this AD are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

These actions are interim actions and we may take further rulemaking actions in the future.

This AD is a final rule that involves requirements affecting flight safety and was not preceded by notice and an opportunity for public comment; however, we invite you to send us any written relevant data, views, or arguments regarding this AD. Send your comments to an address listed under ADDRESSES . Include “AD Docket No. FAA-2007-27552; Directorate Identifier 2007-NE-11-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify it.

We will post all comments we receive, without change, to http://dms.dot.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this AD. Using the search function of the Docket Management System (DMS) Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc). You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78) or you may visit http://dms.dot.gov.

You may examine the docket that contains the AD, any comments received, and any final disposition in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility (telephone (800) 647-5227) is located on the plaza level of the Department of Transportation Nassif Building at the street address stated in ADDRESSES . Comments will be available in the AD docket shortly after the DMS receives them.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES .

The FAA proposed to amend 14 CFR part 39 with a proposed AD. The proposed AD applies to McCauley Propeller Systems C406 and C409 propellers, installed on TCM IO-520, TSIO-520, or IO-550 reciprocating engines. We published the proposed AD in the Federal Register on Nov. 16, 2005 (70 FR 69472). That action proposed to require adding an operational RPM restriction on the C406 and C409 propellers, and installing an RPM restriction placard in the cockpit. We coordinated the proposed placard placement with the responsible Aircraft Certification Offices within the Small Airplane Directorate, and all proposed installations include a manifold pressure gauge. That action also proposed to add a 10,000-hour total time-in-service (TIS) life limit for these propellers. That action also proposed to remove from service any propeller that has 10,000 hours or more total TIS, or that has an unknown total TIS. Finally, that action proposed to require initial and repetitive propeller blade inspections for damage, and repair if necessary.

You may examine the docket that contains the AD, any comments received, and any final disposition in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone (800) 647-5227) is located on the plaza level of the Department of Transportation Nassif Building at the street address stated in ADDRESSES . Comments will be available in the AD docket shortly after the DMS receives them.

We provided the public the opportunity to participate in the development of this AD. We have considered the comments received.

One commenter states that this AD will impose a financial burden on owners and operators of airplanes with this propeller installation because of the increased number of inspections and additional wear on the propeller system increasing the probability of the propeller system failing. The commenter also suggests that stamping a letter on the propeller model to designate a life-limited propeller could create a potentially unsafe condition because the stamping can create stress risers and if improperly treated after stamping, could contribute to corrosion. The commenter also notes that the airplane model designations are incorrect and we omitted one model from the airplane model listing. Finally, the commenter asks why we did not immediately ground the fleet using this propeller because of the described severity of the unsafe condition. We partially agree with the comments. Each is addressed in turn. The increased inspections required by this AD are necessary to resolve the unsafe condition. Owner operators must maintain their aircraft in an airworthy condition, which includes paying for maintenance. We considered that cost and discussed it in the cost section below. We did not change the AD.

This AD will not result in additional wear and tear on the propellers, or in increased failures. This AD resolves an unsafe condition. All actions required are either performed with the propeller installed, or coincident with the next overhaul or major disassembly. An experienced, appropriately rated mechanic can do the inspection and rework without removing the propeller. We did not change the AD.

The manufacturer carefully considered where to stamp the life limit indication to minimize any stress riser. We have no indications that his choice was wrong. We did not change the AD.

We agree that this AD should include additional models. We changed the AD to include the Beech 35-A33 and 35-B33. The Beech 35-A33 and 35-B33 are now included in Applicability paragraph (c) Table (1).

Grounding the fleet that has the suspect propellers installed is not required. The unsafe condition identified is due to material fatigue. The actions required by this AD adequately address the unsafe condition. We did not change the AD.

Another commenter states that the AD does not include a terminating action to eliminate the recurring inspections necessary to comply with it. Even if an operator replaces the existing propeller with a new propeller, the recurring inspections are necessary as long as the replacement propeller is one of same models identified in the airworthiness directive. Additionally, the commenter notes that aircraft performance is also a consideration. This AD will require operating the engine and propeller combination in a less than full engine power regime, which could compromise safety in particular situations associated with departures, arrivals and clearing obstacles. We partially agree.

This AD imposes the RPM and life limit to correct an unsafe condition. The recurring inspections are required to enhance safety. The RPM restriction, imposed propeller life limit, and periodic propeller blade inspection/rework provide a cost effective means to correct the unsafe condition without prematurely retiring the propeller. The RPM restriction does not affect the engine full power ratings. Takeoff, climb, and descent values remain unchanged. Therefore, this AD does not compromise safety during departures, arrivals, and in clearing obstacles. We did not change the AD.

Another commenter believes that the FAA should require a recall of all propeller models listed in the AD so the manufacturer will be responsible for the cost of repair and replacement. We do not agree.

The FAA cannot dictate commercial business decisions related to AD actions. We identified the unsafe condition and are imposing appropriate corrective action. We did not change the AD.

Two commenters asked that we extend the comment period for the proposed rule to give the general aviation community added time to review non-proprietary data used to substantiate the proposed action and to make additional comments. We agree, and extended the comment period to give the aviation community time to respond. The comments that we responded to above include any additional comments that came in.

The proposed rule referenced McCauley Propeller Systems Alert Service Bulletin (ASB) No. ASB248, dated January 17, 2005. The correct date is April 19, 2005. We changed the AD to indicate the correct date of the service bulletin.

We have carefully reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We have determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

This AD will affect about 2,350 C406 and C409 propellers installed on airplanes of U.S. registry. We estimate it will take three work-hours per propeller to perform the proposed inspections and repairs. We also estimate it will take about 0.5 work-hour to install the proposed cockpit placard, and about 950 airplanes will require the placard. The average labor rate is $80 per work-hour. A replacement propeller blade set will cost about $5,200. We estimate 500 propellers in the fleet (or about 21 percent) would require propeller blade set replacement. Based on these figures, we estimate the total cost of the AD to U.S. operators to be $3,202,000.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES .

One report of loose fuel hose connections to the fuel injector servo on a Cessna Model 172S airplane caused us to issue AD 2006-17-04, Amendment 39-14725 (71 FR 47711, August 18, 2006). AD 2006-17-04 on certain Cessna Models 172R, 172S, 182T, T182T, 206H, and T206H airplanes, currently requires you to:

• Inspect the two end fittings on each of the flexible fuel hoses located in the engine compartment for the correct torque values; and

• Tighten the hose end fittings to the correct torque values, if any incorrect torque values are found during the inspection.

Since issuing AD 2006-17-04, we have received four additional reports of loose fuel lines connected to the fuel servo or fuel flow transducer. Two reports were of in-flight engine failure on a Model T182T airplane. A third report was of in-flight engine failure on a Model 206H airplane. A fourth report was of a Model 172S airplane that lost engine power on final approach.

In issuing AD 2006-17-04, our intent was for the torque values provided in Table 4 of the AD to be verified. However, the actions we specified in AD 2006-17-04 resulted in visual-only inspections being accomplished in some cases. Visual inspection of torque paint or putty is not sufficient to address the unsafe condition. This AD clarifies that the torque values need to be physically established.

This condition, if not corrected, could result in loss of fuel flow resulting in partial or complete loss of engine power and/or uncontrolled engine compartment fire due to fuel leakage forward of the firewall.

We reviewed Cessna Service Bulletin No. SB07-71-01, original issue dated March 2, 2007, Revision 1, dated March 16, 2007. The service information describes procedures for a physical inspection of the fuel hose connections on each of the hoses by loosening each connection and then reapplying the correct torque value to make sure that they are correctly torqued.

We are issuing this AD because we evaluated all the information and determined the unsafe condition described previously is likely to exist or develop on other products of the same type design. This AD requires you to establish the correct torque values of the end fittings on fuel hoses for certain Cessna Models 172R, 172S, 182T, T182T, 206H, and T206H airplanes. This AD clarifies that the torque values need to be physically established and visual inspection only is not sufficient.

In preparing this rule, we contacted type clubs and aircraft operators to get technical information and information on operational and economic impacts. We did not receive any information through these contacts. If received, we would have included a discussion of any information that may have influenced this action in the rulemaking docket.

Since an unsafe condition exists that requires the immediate adoption of this AD, we determined that notice and opportunity for public comment before issuing this AD are impracticable, and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and an opportunity for public comment. We invite you to send any written relevant data, views, or arguments regarding this AD. Send your comments to an address listed under the ADDRESSES section. Include the docket number “Docket No. FAA-2007-27709; Directorate Identifier 2007-CE-028-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the AD. We will consider all comments received by the closing date and may amend the AD in light of those comments.

We will post all comments we receive, without change, to http://dms.dot.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive concerning this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

You may examine the AD docket that contains the AD, the regulatory evaluation, any comments received, and other information on the Internet at http://dms.dot.gov; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone (800) 647-5227) is located at the street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

The FAA published this direct final rule with a request for comments in the Federal Register on February 26, 2007 (72 FR 8266). The FAA uses the direct final rulemaking procedures for a non-controversial rule where the FAA believes that there will be no adverse public comment. This direct final rule advised the public that no adverse comments were anticipated, and that unless a written adverse comment, or a written notice of intent to submit such an adverse comment, were received within the comment period, the regulation would become effective on May 10, 2007. No adverse comments were received, and thus this notice confirms that this direct final rule will become effective on that date.

On February 23, 2007, the FAA published in the Federal Register a notice of proposed rulemaking to revise Class E airspace at Redmond, OR (72 FR 8137). This action would improve the safety of IFR aircraft executing this new RNAV GPS approach procedure at City-County Airport, Madras, OR. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9P dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in that Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by revising Class E airspace at Redmond, OR. Additional controlled airspace is necessary to accommodate IFR aircraft executing a new RNAV (GPS) approach procedure at City-County Airport, Madras, OR.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under Department of Transportation (DOT) Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 95 of the Federal Aviation Regulations (14 CFR part 95) amends, suspends, or revokes IFR altitudes governing the operation of all aircraft in flight over a specified route or any portion of that route, as well as the changeover points (COPs) for Federal airways, jet routes, or direct routes as prescribed in part 95.

The specified IFR altitudes, when used in conjunction with the prescribed changeover points for those routes, ensure navigation aid coverage that is adequate for safe flight operations and free of frequency interference. The reasons and circumstances that create the need for this amendment involve matters of flight safety and operational efficiency in the National Airspace System, are related to published aeronautical charts that are essential to the user, and provide for the safe and efficient use of the navigable airspace. In addition, those various reasons or circumstances require making this amendment effective before the next scheduled charting and publication date of the flight information to assure its timely availability to the user. The effective date of this amendment reflects those considerations. In view of the close and immediate relationship between these regulatory changes and safety in air commerce, I find that notice and public procedure before adopting this amendment are impracticable and contrary to the public interest and that good cause exists for making the amendment effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Background

Section 871(a) of the Code imposes a tax of 30 percent on U.S. source fixed or determinable annual or periodic (FDAP) income, including interest, received by a nonresident alien individual to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States. Section 881(a) imposes a similar tax with respect to FDAP income, including interest, received by a foreign corporation. Both sections 871(h)(3)(A) and 881(c)(3)(B) provide, among other limitations, that portfolio interest does not include interest received by a 10-percent shareholder, as defined in section 871(h)(3)(B).

The IRS and the Treasury Department issued proposed regulations (REG-118775-06) under sections 871(h) and 881(c) in the Federal Register (71 FR 34047) on June 13, 2006. The proposed regulations address the application of the 10-percent shareholder test when U.S. source interest is paid to a partnership that has a nonresident alien individual or foreign corporation as a partner. The proposed regulations provide that, for interest paid on obligations issued on or after the date that final regulations are published, the 10-percent shareholder test is to be applied only at the partner level and at the time that the withholding agent would otherwise be required to withhold.

No public hearing was requested or held. However, a few comments were received. After consideration of the comments, the proposed regulations are adopted in these final regulations, with two modifications. In addition, these final regulations implement section 5 of Notice 2006-99 (46 IRB 907) (See § 601.601(d)(2) of this chapter), modifying § 1.1441-1(b)(7)(iii), as discussed below.

The proposed regulations provide that the 10-percent shareholder test applies at the time the withholding agent would otherwise be required to withhold. The regulations then provide an example in which the test is stated to apply on the “earliest” of when the interest is distributed, the date the statement under section 6031(c) is mailed, or the due date for furnishing the statement. In order to make clear that the test may be applied on multiple dates (and not only on the date of a first partial distribution of such interest), the example has been rephrased. The example now states that the 10-percent shareholder test is applied when any distributions that include the interest are made to a foreign partner and, to the extent that a foreign partner's distributive share of the interest has not actually been distributed, on the earlier of the date that the statement required under section 6031(c) is mailed or otherwise provided to such partner, or the due date for furnishing such statement. This change conforms more closely to the language of § 1.1441-5(c)(2).

The new provisions set forth in the proposed regulations were proposed to apply to interest paid on obligations issued after the date that final regulations are published. One commentator stated that, in order to provide for consistency and to eliminate uncertainty and avoid possible disputes with respect to interest paid to partnerships prior to the date that the final regulations are published, the final regulations should apply to interest paid after July 18, 1984, with respect to obligations issued after July 18, 1984, the effective date of the portfolio interest provisions. Another commentator stated that the final regulations should apply to interest paid after the date the final regulations are issued.

The IRS and the Treasury Department agree that taxpayers should be able to apply the regulations to interest paid in certain prior taxable years. Accordingly, while the final regulations generally provide that the provisions relating to the 10-percent shareholder test for interest paid to partnerships are to apply to interest paid after the date the regulations are published as final regulations, the regulations also permit taxpayers to choose to apply the provisions to interest paid in any taxable year that is not closed by the period of limitations, provided that the taxpayer consistently applies the provisions to all relevant partnerships during such years.

Treasury Regulation § 1.1441-1(b)(7)(iii) provides that a withholding agent that has failed to withhold tax other than based on reliance on the appropriate presumptions is not relieved from liability for interest under section 6601. It further provides that such liability exists even when there is no underlying tax that is ultimately shown to be due. That is, the regulation imposes an interest charge under section 6601 on a withholding agent for an amount of tax that has not in fact been imposed. Treasury Regulation § 1.1441-1(b)(7)(v) sets forth two examples that illustrate the operation of this rule.

In Notice 2006-99 (2006-46 IRB 907), the IRS and the Treasury Department announced their intention to remove the rule in Treasury Regulation § 1.1441-1(b)(7)(iii), and the accompanying examples illustrating the rule in Treasury Regulation § 1.1441-1(b)(7)(v), that impose interest under section 6601 when no underlying tax liability is imposed. Further, the Notice announced that the IRS and the Treasury Department intend to clarify that, like interest, penalties that are computed based on underpayments of tax will not be imposed when no tax has in fact been imposed.

These final regulations retroactively remove, in accordance with Notice 2006-99, the rule in § 1.1441-1(b)(7)(iii) that would impose interest and penalties based on hypothetical underpayments of tax when in fact no tax has been imposed. The examples illustrating this rule in Treasury Regulation § 1.1441-1(b)(7) are also removed.

It has been determined that these regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of the proposed regulations is Kathryn Holman, Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

The Postal Service published a proposal in the Federal Register (71 FR 32, February 16, 2007) to revise the standards for mailing containers when shipping chickens. The revised mailing standards would promote the safety of our employees, customers, and all mailed adult fowl.

We received one comment. The commenter stated that no birds should be mailed in the United States because of a chance of spreading bird diseases.

We have accepted birds in the mail for many years without incident, and we are comfortable in continuing to provide service to bird industries as well as individual customers. We are aware of concerns associated with handling bird containers in transit, and we will continually monitor and revise our mailing requirements to mitigate potential risk.

We adopt the following amendments to Mailing Standards of the United States Postal Service , Domestic Mail Manual (DMM), incorporated by reference in the Code of Federal Regulations. See 39 CFR 111.1.

On October 27, 1998, EPA published a final rule known as “NO X SIP Call.” (see 63 FR 57356). The NO X SIP Call requires 22 states, including the State of Tennessee, and the District of Columbia to meet statewide NO X emission budgets during the ozone season in order to reduce the amount of ground-level ozone that is transported across the eastern United States. The amounts of required reductions in NO X emissions were set to equal the amounts that would be achieved by applying highly cost-effective control measures to source categories available in each state. The source categories identified and regulated in the NO X SIP Call are electric generating units, non-electric generating units, internal combustion engines, and cement kilns.

In order to meet NO X SIP Call requirements, the State of Tennessee submitted SIP revisions to EPA for approval on November 7, 2000, and additional materials on January 11, 2001 and October 04, 2001. These revisions established a NO X allowance trading program for large electrical generating and industrial units, and NO X reductions for cement kilns. To reduce NO X emissions from cement kilns, the State proposed the addition of State Rule 1200-3-27-.04—Standards for Cement Kilns. EPA approved these revisions to Tennessee SIP on January 22, 2004. (See 69 FR 3015). This document addresses Knox County request to add a rule in the Knox County portion of the Tennessee SIP that is similar to the State's.

On August 18, 1999, and July 16, 2001, the State of Tennessee, through TDEC, submitted revisions to the Tennessee SIP. The revisions pertain to the Knox County portion of the Tennessee SIP and include changes to KCAQR Section 51.0—Standards for Cement Kilns. These revisions were initially submitted by Knox County for review by TDEC, which found them to be as or more stringent than State's requirements. After conducting its own review of these revisions, EPA concurs with TDEC's finding. The rule changes became State effective on August 12, 1999 and July 11, 2001, respectively and are part of the Knox County's strategy to attain and maintain the NAAQS. They are approvable into the Knox County portion of the Tennessee SIP pursuant to section 110 of the CAA.

The August 18, 1999 SIP revisions proposed the addition of a new section to KCAQR, Section 51.0—Standards for Cement Kilns. The rules in this section were designed to reduce NO X emissions by setting emissions control, compliance demonstration, certification, record keeping, and reporting requirements for Portland cement kilns in the County. In the July 16, 2001 SIP Submittal, Knox County proposed changes to KCAQR, Section 51.0 by adopting the same language used in the State's air regulations. For example, the County eliminated the definitions for the terms “shutdown” and “startup” as related Portland cement kilns in the original rule because they were not found in the State's rule on “Standards for Cement Kilns”.

EPA is approving the aforementioned changes to the Knox County portion of the Tennessee SIP. EPA has reviewed the Knox County's justification concerning the addition of the standards for cement kilns into the Knox County portion of the Tennessee SIP and concurs with the changes.

EPA is publishing this rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. However, in the proposed rules section of this Federal Register publication, EPA is publishing a separate document that will serve as the proposal to approve the SIP revision should adverse comments be filed. This rule will be effective June 11, 2007 without further notice, unless the Agency receives adverse comments by May 14, 2007.

If EPA receives such comments, then EPA will publish a notice withdrawing the final rule and informing the public that the rule will not take effect. All public comments received will then be addressed in a subsequent final rule based on the proposed rule. The EPA will not institute a second comment period. Parties interested in commenting should do so at this time. If no such comments are received, the public is advised that this rule will be effective on June 11, 2007 and no further action will be taken on the proposed rule. Please note that if we receive adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, we may adopt as final those provisions of the rule that are not the subject of an adverse comment.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the CAA. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the CAA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. section 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. section 804(2).

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by June 11, 2007. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2)).

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

Do not submit this information to EPA through www.regulations.gov or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

When submitting comments, remember to:

1. Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

2. Follow directions—The EPA may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

3. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

4. Describe any assumptions and provide any technical information and/or data that you used.

5. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

6. Provide specific examples to illustrate your concerns, and suggest alternatives.

7. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

8. Make sure to submit your comments by the comment period deadline identified.

EPA is making a revision to the CFR for the purpose of giving WDNR full regulatory responsibility for EPA-issued PSD permits on non-tribal lands.

EPA first delegated the PSD program to WDNR on November 13, 1987, which was later amended by a February 16, 1989, delegation. The 1989 delegation included language which authorized WDNR to amend EPA-issued PSD permits. EPA granted final full approval to Wisconsin's PSD program on May 27, 1999 (64 FR 28745), which became effective and was approved into the State Implementation Plan (SIP) on June 28, 1999. However, EPA stated in 40 CFR 52.2581 that its approval did not extend to sources with Federal PSD permits and EPA retained authority to administer the PSD program for those permits.

EPA received a letter dated March 28, 2006, from WDNR regarding facilities within the state that have permits which require revision, modification, and/or updates. Allowing WDNR to have the authority to amend the EPA-issued PSD permits will enable WDNR to have direct access to modify these permits accordingly. This will facilitate permit tracking and identification of applicable requirements for WDNR permit engineers.

The Clean Air Act contains requirements that must be met when a State/Local/Tribe is adopting a plan requirement. Section 110(a)(2)(E)(i) requires that any government who wishes to carry out such implementation plan have “adequate personnel, funding, and authority under State law.”.

In a letter sent to EPA dated July 19, 2006, WDNR demonstrated state legal authority to take responsibility for the permits. WDNR's authority to take responsibility for EPA-issued permits can be found under Wisconsin's Statutes in s. 285.67, Wis. Stat., which authorizes WDNR to promulgate rules for revising, suspending, and revoking air pollution control permits. Section NR 406.11, Wis. Adm. Code, authorizes WDNR to revise construction permits, including PSD permits. In the same letter, WDNR demonstrated that it has the adequate resources and funding to become the primary regulating agency of the EPA-issued PSD permits. WDNR has 19.5 full time employees to perform construction permit activities under a program that annually generates approximately two million dollars in program revenue.

None of the facilities with EPA-issued PSD permits which are the subject of this action are located in Indian Country. We do not anticipate that this action will have any affect on tribal rights within Indian country or in ceded territories.

With this action, the regulatory text in 40 CFR 52.2581 will be revised to reflect that WDNR has been given full regulatory responsibility for EPA-issued PSD permits.

EPA is revising 40 CFR 52.2581 to give WDNR regulatory responsibility for EPA-issued PSD permits. The language, “and sources with permits issued by EPA prior to the effective date of the state's rules,” will be deleted. WDNR has demonstrated that it has the legal authority, and adequate resources, to take over full regulatory responsibility for the permits.

We are publishing this action without prior proposal because we view this as a noncontroversial amendment and anticipate no adverse comments. However, in the proposed rules section of this Federal Register publication, we are publishing a separate document that will serve as the proposal to approve the state plan if relevant adverse written comments are filed. This rule will be effective June 11, 2007 without further notice unless we receive relevant adverse written comments by May 14, 2007. If we receive such comments, we will withdraw this action before the effective date by publishing a subsequent document that will withdraw the final action. All public comments received will then be addressed in a subsequent final rule based on the proposed action. The EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. If we do not receive any comments, this action will be effective June 11, 2007.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and, therefore, is not subject to review by the Office of Management and Budget.

Because it is not a “significant regulatory action” under Executive Order 12866 or a “significant energy action,” this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001).

This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ).

Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (59 FR 22951, November 9, 2000).

This action also does not have Federalism implications because it does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act.

This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing state submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the state to use voluntary consensus standards (VCS), EPA has no authority to disapprove a state submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a state submission, to use VCS in place of a state submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply.

This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. section 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by June 11, 2007. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2)).

Throughout this document any reference to “we,” “us,” or “our” shall mean the EPA.

EPA is taking final action to approve revisions to the Arkansas SIP that were submitted on February 3, 2005, and July 3, 2006, by the Governor of Arkansas. The 2005 submittal consists of revisions to “Regulation No. 19—Regulations of the Arkansas Plan of Implementation for Air Pollution Control.” The 2006 submittal consists of further revisions to “Regulation No. 19—Regulations of the Arkansas Plan of Implementation for Air Pollution Control” and a new “Regulation No. 31—Nonattainment New Source Review Requirements.” The revisions were made to update the Arkansas NSR programs to make them consistent with changes to the Federal NSR regulations published on December 31, 2002 (67 FR 80186) and November 7, 2003 (68 FR 63021). These two EPA rulemakings are commonly referred to as the “2002 NSR Reform Rules.”

These SIP revisions also add provisions for implementing the air permitting requirements for the 8-hour ozone national ambient air quality standard-phase 2 (promulgated November 29, 2005 (70 FR 71611)), Economic Development Zone rules that implement section 173(a)(1)(B) of the Act, and provisions for Stage I Vapor Recovery. In addition, Arkansas revised Regulation No. 19 to make the following non-substantive changes (which do not change the regulatory requirements): redesignated the subdivisions from “Section” to “Reg.”; changed references to “Arkansas Department of Pollution Control and Ecology” to “Arkansas Department of Environmental Quality”; corrected typographical errors and grammar; and improved readability and clarity. EPA is taking no action on Chapter 8 of Regulation No. 19 “111(d) Designated Facilities.”

On December 1, 2006 (71 FR 69519), EPA published a proposed rulemaking in which we proposed to approve these SIP revisions. The December 1, 2006, proposal provides detailed information about the Arkansas SIP revisions that are being approved today. The proposal also provides a detailed analysis of EPA's rationale for approving the Arkansas SIP revisions. In the proposal, we provided opportunity for public comment on the proposed action. The public comment period for this proposed rulemaking ended January 2, 2007. We received no comments, adverse or otherwise, on the proposed rulemaking. We are therefore finalizing our proposed approval without changes. For more details on these submittals, please refer to the proposed rulemaking described above and the Technical Support Document (TSD), which is in the docket for this action.

In summary, EPA is approving revisions to the Arkansas SIP (revisions to Regulation No. 19 and new Regulation No. 31) submitted by the State of Arkansas on February 3, 2005 and July 3, 2006. We are taking no action on Chapter 8 of Regulation No. 19.

On December 31, 2002, EPA published final rule changes to 40 Code of Federal Regulations (CFR) parts 51 and 52, regarding the Act's PSD and NNSR programs. See 67 FR 80186. On November 7, 2003, EPA published a final action on the reconsideration of the December 31, 2002 final rule changes. See 68 FR 63021. In the November 7th final action, EPA added the definition of “replacement unit,” and clarified an issue regarding PALs. The December 31, 2002, and the November 7, 2003, final actions are collectively referred to as the “2002 NSR Reform Rules.” The purpose of today's action is to approve the SIP submittals from the State of Arkansas, which adopts EPA's 2002 NSR Reform Rules. For additional information on the 2002 NSR Reform Rules, see 67 FR 80186 (December 31, 2002), and http://www.epa.gov/nsr.

After the 2002 NSR Reform Rules were finalized and effective (March 3, 2003), various petitioners challenged numerous aspects of the 2002 NSR Reform Rules, along with portions of EPA's 1980 NSR Rules (45 FR 5276, August 7, 1980). On June 24, 2005, the D.C. Circuit Court of Appeals issued a decision on the challenges to the 2002 NSR Reform Rules. See New York v. United States , 413 F.3d 3 (D.C. Cir. June 24, 2005), rehearing en banc denied (Dec 09, 2005). In summary, the Court vacated portions of the rules pertaining to Clean Units and Pollution Control Projects, remanded a portion of the rules regarding recordkeeping, e.g., 40 CFR 51.165(a)(6) and 40 CFR 51.166(r)(6), and either upheld or did not comment on the other provisions included as part of the 2002 NSR Reform Rules. The EPA has not yet responded to the Court's remand regarding the recordkeeping provisions. Today's action is consistent with the decision of the D.C. Circuit Court of Appeals because Arkansas' submittal does not include any portions of the 2002 NSR Reform Rules that were vacated as part of the June 2005 decision.

The 2002 NSR Reform Rules require that state agencies adopt and submit revisions to their SIP permitting programs implementing the minimum program elements of the 2002 NSR Reform Rules no later than January 2, 2006. See 40 CFR 51.166(a)(6)(i) (requiring state agencies to adopt and submit PSD SIP revisions within three years after new amendments are published in the Federal Register ). State agencies may meet the requirements of 40 CFR part 51 and the 2002 NSR Reform Rules, with regulations that are different than, but equivalent to, Federal regulations. If, however, a state decides not to implement any of the new applicability provisions, that state must demonstrate that its existing program is at least as stringent as the Federal program. In adopting changes to Federal law, a state may write the Federal requirements into the state SIP or the state may incorporate the Federal rule into the SIP by referencing the citation of the Federal rule. As discussed in further detail in the proposed approval notice and in the TSD in the docket for this action, EPA determined the revisions contained in the Arkansas submittal are approvable for inclusion into the Arkansas SIP. The TSD includes a detailed evaluation of the Arkansas NSR SIP revisions, permitting provisions for implementing the 8-Hour Ozone NAAQs and the Crittenden County Economic Development Zone, Stage I Vapor Recovery rules, and non-substantive revisions to previously SIP-approved regulations. The TSD discusses how these regulations meet the applicable Federal requirements. We are approving the revisions because we find the changes consistent with EPA's implementing regulations, guidance, and policy and with section 110(l) of the Act.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on: one or more Indian tribes, the relationship between the Federal Government and Indian tribes, or the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. The EPA interprets Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), as applying only to those regulatory actions that concern health or safety risks such that the analysis required under section 5-501 of the Executive Order has the potential to influence the regulation. This rule is not subject to Executive Order 13045 because it would approve a state program. Executive Order 12898 (59 FR 7629 (February 16, 1994)) establishes federal executive policy on environmental justice. Because this rule merely approves a state rule implementing a Federal standard, EPA lacks the discretionary authority to modify today's regulatory decision on the basis of environmental justice considerations.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by June 11, 2007. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

On March 15, 2007, the National Telecommunications and Information Administration (NTIA) published a Final Rule (72 FR 12097). The dates heading on page 12097 incorrectly sets out the effective date as April 16, 2007. The correct effective date of the Final Rule is May 16, 2007.

Executive Order 12866: This rule correcting the effective date (Correcting Rule) is determined to be not significant under EO 12866.

Administrative Procedure Act: NTIA finds good cause to waive prior notice and an opportunity for public comment as it is impracticable and contrary to the public interest. The Final Rule indicated that the effective date of the Final Rule is April 16, 2007. It was NTIA's intent to have the rule come into effect on May 16, 2007. Due to an inadvertent error, the Final Rule reflected an incorrect effective date. If this Correcting Rule is delayed to allow for prior notice and an opportunity for public comment, the Final Rule would come into effect on an incorrect date, which would be contrary to the intent of NTIA and this Correcting Rule. In order to prevent the Final Rule from coming into effect on an incorrect date, NTIA finds good cause to waive the notice and comment rulemaking requirements for this Correcting Rule.

For the reasons above, NTIA waives under 5 U.S.C. § 553, the 30-day delay in effectiveness for the Correcting Rule. If this Correcting Rule was delayed for 30 days, the regulations promulgated by the Final Rule would be implemented on an incorrect effective date. To prevent the Final Rule from coming into effect on an incorrect date, NTIA finds good cause to waive the 30-day delay in effectiveness for the Correcting Rule.

The EPAAR additions are necessary so that the Agency can ensure that environmental preferability is considered in all purchases of commercial meeting and conference services. The new solicitation provision will not impose a substantial additional burden on meeting venues since they currently submit quotes or offers to the Agency in response to solicitations for meeting and conference services, and the rule will allow the information to be obtained electronically or orally when appropriate to the acquisition. The EPAAR changes are consistent with the FAR.

This action is not a “significant regulatory action” under the terms of Executive Order (EO 12866 (58 FR 51735, October 4, 1993) and is therefore not subject to review under the EO.

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. This rule does not impose any new information collection or other requirements on Agency contractors. Collection of information from prospective contractors via Agency solicitation is covered under existing active clearances OMB 9000-0136, Commercial Item Acquisitions—FAR Sections Affected: Part 12; 52.212-1 and 52.212-3, a Federal Acquisition Regulation clearance, in the case of commercial item simplified acquisitions; and OMB 2030-0006, Invitations for Bids and Request for Proposals (IFBs and RFPs), an EPA clearance, in the case of sealed bid or negotiated procurements. These clearances allow information to be collected from a quoter or offeror with the purpose of evaluating its capabilities for performing the contract requirements. In the case of this regulation, one of EPA's requirements is to purchase environmentally preferable meeting and conference services to the greatest extent practicable, so we will need to solicit from each facility a technical description of environmentally preferable measures it has in place.

The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration's (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of today's proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This rule will not impose any new requirements on small entities.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements.

Today's rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local, or tribal governments or the private sector. The rule imposes no enforceable duty on any State, local or tribal governments or the private sector. Thus, today's rule is not subject to the requirements of sections 202 and 205 of the UMRA.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

This final rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. Thus, Executive Order 13132 does not apply to this rule.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This final rule does not have tribal implications, as specified in Executive Order 13175. It will not have substantial direct effects on tribal governments, or on the relationship between the Federal government and Indian tribes, as specified in Executive Order 13175. The final rule amends acquisition regulations that are administrative and procedural in nature. Thus, Executive Order 13175 does not apply to this rule.

Executive Order 13045: “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997) applies to any rule that: (1) Is determined to be “economically significant” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

This rule is not subject to Executive Order 13045 because it is not an economically significant rule as defined by Executive Order 12866, and because it does not involve decisions on environmental health or safety risk.

This rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not a significant regulatory action under Executive Order 12866.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g. , materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards. EPA welcomes comments on this aspect of the rulemaking and, specifically, invites the public to identify potentially applicable voluntary consensus standards and to explain why such standards should be used in this regulation.

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

EPA has determined that this final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. While this rule establishes a procedure that will require Agency employees to request information from prospective meeting venues about their environmentally preferable (green) practices for consideration in the award decision, it imposes no requirement or standard that a facility must meet in order to do business with us, so it does not directly affect the level of protection provided to human health or the environment.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective on May 1, 2007.

We received comments from three commenters during the official comment period for the February 23, 2007 proposal. Minor revisions to the proposed language were made in response to these comments. The comments are summarized below in the order we received them along with EPA's responses.

Comment. The first commenter stated that meetings should be held on netmeeting software or by teleconference because travel for face-to-face meetings is costly and creates unnecessary pollution.

Response. Noted. The comment makes valid points as to the direction the Agency should go in minimizing travel through the use of telecommunication technology where feasible. EPA is keenly aware of its own environmental impact, and over time continues to seek new ways to minimize this impact, as well as reduce its burden on appropriated taxpayer funds. However, this rulemaking action revises Agency acquisition guidance, so any change to our travel policies are beyond the scope of this particular rule.

Comment. The second commenter expressed support for the proposed rule, but suggested that it could be stronger if environmentally preferable features were taken into account when deciding on a vendor for micropurchases.

Response. Partially concur. The rule requires that environmentally preferable features are considered in all purchases, including micropurchases. However, requiring at micropurchase level that environmental preferability must be used as an evaluation factor in selecting among competing venues would be inconsistent with the FAR. The procedure for micropurchases in paragraph (c) of 1523.703-1 requires use of the solicitation provision so that information on a meeting venue's environmental preferability may be considered, but no competition among vendors or best value determination is required. The procedure is consistent with micropurchase guidelines established in the FAR (13.202) in that it states that environmentally preferable meeting facilities must be purchased to the greatest extent practicable, but does not require solicitation of competitive quotations for micropurchases.

Comment. The second commenter also suggests revising the rule to include a question on the sourcing of food in the solicitation provision. For example, does the vendor make an effort to source food from local growers, thereby reducing the environmental impact of shipping large quantities of food long distances?

Response. Concur. EPA agrees that this is an important point to consider in evaluating vendor environmental performance, and has revised the language in the 1552.223-71 solicitation provision questions to incorporate this principle.

Comment. The third commenter expressed support for EPA's leadership and innovation in establishing a green meetings and conferences contracting program, but suggests that EPA add the following question to the solicitation provision in order to promote the use of biobased products under the Farm Security and Rural Investment Act: Do you use biobased or biodegradable products, including biobased cafeteriaware? Please describe.

Response. Concur. EPA agrees that this is an important point to consider in evaluating vendor environmental performance, and has revised the language in the 1552.223-71 solicitation provision questions to incorporate this principle.

Section 403 of the MSRA amends the High Seas Driftnet Fishing Moratorium Protection Act (Driftnet Moratorium Protection Act), 16 U.S.C. 1826d et seq. , by adding, among other things, a new section 609 that addresses illegal, unreported, or unregulated fishing. Section 609 requires the Secretary of Commerce (Secretary) to identify, and list in a biennial report to Congress, a nation if its fishing vessels are engaged, or have been engaged during the preceding 2 years, in illegal, unreported, or unregulated fishing. Section 609 also provides for notification to and consultation with nations and an “IUU Certification Procedure” for determining if a nation or relevant international fishery management organization has taken specified action to address the IUU fishing activities. As an initial step, section 609(e)(2) requires the Secretary to “publish a definition of the term 'illegal, unreported, or unregulated fishing,' for purposes of this Act,” within 3 months after the date of enactment of MSRA, i.e., by April 12, 2007. Publication of this definition is the focus of this rulemaking. NMFS intends to conduct separate rulemaking, as needed, to implement other requirements such as the IUU certification procedure.

Section 609(e)(3) states that “the Secretary shall include in the definition, at a minimum—

NMFS has decided to publish the definition exactly as set forth in section 403 of MSRA (new section 609(e)(3) of the Driftnet Moratorium Protection Act). As noted above, NMFS will initiate separate rulemaking for the IUU certification procedure, and if needed, may promulgate additional implementing regulations for the definition of “illegal, unreported, or unregulated” fishing as that procedure is developed.

Therefore, for purposes of the MSRA, this final rule defines “illegal, unreported, or unregulated” fishing as: (A) fishing activities that violate conservation and management measures required under an international fishery management agreement to which the United States is a party, including catch limits or quotas, capacity restrictions, and bycatch reduction requirements; (B) overfishing of fish stocks shared by the United States, for which there are no applicable international conservation or management measures or in areas with no applicable international fishery management organization or agreement, that has adverse impacts on such stocks; or (C) fishing activity that has an adverse impact on seamounts, hydrothermal vents, and cold water corals located beyond national jurisdiction, for which there are no applicable conservation or management measures or in areas with no applicable international fishery management organization or agreement.

This final rule is published under the authority of the MSRA.

This rule has been determined to be not significant for purposes of Executive Order 12866.

Pursuant to 5 U.S.C. 553(b)(B), there is good cause to waive prior notice and an opportunity for public comment on this action, as notice and comment is unnecessary. This rule publishes verbatim a definition that is already set forth in a statute, and NMFS has no authority to publish a definition that does not include the specific elements set forth in the statute. Thus, public comment would be unnecessary. For the same reason, the Assistant Administrator finds good cause to waive the 30-day delay in effectiveness pursuant to 5 U.S.C. 553(d)(1). This rule publishes verbatim a definition that is already set forth in a statute; thus, public comment would be unnecessary.

Because prior notice and opportunity for public comment are not required for this rule by 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. , are inapplicable.